00:06:33 · Molly O'Shea, Michel Del Buono
[00:06:33] S1: And then what are the types of instruments and, I guess, tools that you use when you set them up? If it's like, you know I don't know. If you set this up, could you just, like, break down alright. We're in a liquidity event. We're gonna put all the money into a trust. Alright. How do we then construct the portfolio and what comes off of there? [00:06:54] S0: Yeah. Yeah. So you you're probably gonna have several trusts. Again, full disclosure, I'm not an attorney. Right? But you're gonna have several trusts that'll be dedicated to different members of your family or different entities. And each of those should probably have a different investment strategy. So if you're young and you inherit or your parents set up for a trust with a lot of stock in it, you have a very long time horizon, right, because you're young. So there, the appropriate investment strategy is different than for an individual who's older and has cash needs to fund their life. So it's all about figuring out for each piece of that mosaic of trust that you're creating, what's the optimal strategy, investment strategy to operate inside of them. You can't just photocopy the same thing for all the different trusts. And that's where it gets complicated. I think that's where people sort of get confused. And it's not unusual to see people with many, many trusts. So that makes the problem that much more complicated. [00:07:55] S1: How do you approach QSBS?
00:07:55 · Molly O'Shea, Michel Del Buono
[00:07:55] S1: How do you approach QSBS? [00:07:57] S0: I mean, QSBS is an incredible benefit for small and so for founders who start early in the life of the company, they get 10,000,000 now actually starting, I guess at the beginning of this year, to 15,000,000 off their tax, or 15,000,000 of proceeds from their stock sale would be not taxed. So it's a huge benefit, it's a huge motivator for people to actually go into startups. I was recently speaking to some people abroad in Asia who wanted to sort of create you know, an entrepreneurial community. They said, what's so special about America? And one of the things I think is the tax code, the environment, the culture of trying to start something is very important, including this QSPS benefit. It's a very important motivator to think that, hey, you know, if I work like crazy and dedicate myself to something, you know, I get to keep some of the proceeds in an advantaged way. So a lot of these strategies of having multiple trusts are to try to multiply these QSPS benefits across the different trusts. [00:09:01] S1: And people say they talk about stacking them. So how does stacking them? [00:09:05] S0: That's what stacking means. [00:09:07] S1: Oh, okay. [00:09:07] S0: Right. So you can have several trusts for your kids, your parents, what whatever. And each of those, depending on how you structure them and it's complicated and probably above my legal knowledge. But each of those can get if it's structured right, its own QSBS exemption.
00:09:07 · Michel Del Buono, Molly O'Shea
[00:09:07] S0: Right. So you can have several trusts for your kids, your parents, what whatever. And each of those, depending on how you structure them and it's complicated and probably above my legal knowledge. But each of those can get if it's structured right, its own QSBS exemption. [00:09:26] S1: Mhmm. Is there any more to that? Like, what what like, I'm just curious. Okay. So coming from someone who doesn't know all the nuances between all of this, like, I know I asked you this before. Like, how do you lay it out? I know within all of these structures and entities, there's like seven more layers and like more nuances and like whether it's strategies, portfolios, you like, where you domicile it, all those sorts of things.
00:09:49 · Michel Del Buono
[00:09:49] S0: Right. So, I mean, obviously, if you can multiply your QS BS benefit across several trusts, you're going to get that 10 or $15,000,000 of benefit each time. So it's huge. Right? So the economics of that are very compelling and easy to understand. But to your point, this and is where it kind of delves into sort of people's families and their personal preferences and how they're some people don't want to leave everything to their kids, some people do. So that then dictates how big those trusts are, dictates what kind of strategies are in them. It dictates how you distribute money out to the recipients. When? Do you give the money to people when they're 30? Do you give them money when they're 40? Do you allow them to, if they're younger, to invest in, I don't know, a startup that they're running or not? So all that becomes really personal, and that's why this exercise is, it's hard to generalize because it's so personal, and effectively all these trusts are kind of handmade, custom made by attorneys. It's a lengthy process because you have to decide all these things. And I think where people fall down a lot is that when they start realizing you make these decisions that have long ranging implications, they don't really know. They haven't decided yet. Do I leave all my wealth to my child or half my wealth? And then they get stuck on that and they never progress forward and then miss the boat on getting the tax benefits. Right? So I think a lot of the preparation is actually sort of psychology, philosophy, family values, whatever you wanna call it, have all that thought out so that when it comes time to structure things, you already know, yeah, my niece Molly is gonna get X amount and she's gonna get it when she's 40 and here's gonna be the trustee that controls that and so on and so forth. If you don't have those basic things thought out, trying to structure the trust itself is not the difficult bit. It's these things you define inside it that are difficult. What
00:11:48 · Molly O'Shea, Michel Del Buono
[00:11:48] S1: are the biggest mistakes that people commonly make? [00:11:52] S0: Well, I think the biggest one is they don't think about this, and then at the last minute they try to sort of build all this and run all these roadblocks, which are again complicated discussions they have to have as a family, as a broad family, and to think about these things, and they're not ready to do that, they haven't thought about it, and they don't have the time to do that. And so then they drop the ball in terms of getting these things done. So, I mean, this sounds really trivial, but at the end of day, be prepared. So some people come and are very prepared and they have this sort of family values document they wrote out that they all agreed on about how the inheritance is going to work and who gets what and what the inheritance is for. Some people are very prepared and that makes life a lot easier. [00:12:32] S1: The last conversation we had, you mentioned you don't and not I don't know if I'm allowed to say advice, but you've seen and you may not suggest that someone liquidates their entire position on day one, to trickle it out and start putting it in different places, not to put words into your mouth. You have the liquidity event coming up, how do you then manage it across the next year or two?
00:12:57 · Michel Del Buono
[00:12:57] S0: So I think wealth managers, asset managers, it's very self serving for them to say, hey, you should liquidate everything because obviously they're not going to charge you fees on your concentrate position. It's your stock. You brought it to the table. But they will charge you fees if they build you a stock or a bond portfolio or private equity portfolio. So it's self serving for them to say to you, I'll liquidate everything because you should diversify and get out. Now, I think the statement you should diversify, I mean, to some degree, you probably should for a rainy day, but the degree to which you do that becomes a personal preference. I can't put myself in your shoes. Some people are very risk averse, so they wanna get out of everything as fast as they can. Others really wanna ride the wave of the company. History has shown that hanging on to your stock, generally speaking, not always. I mean, there are counterexamples, of course, to everything. Generally, you know, stock that got you to the liquidity point, it will probably continue to do pretty well. And if anything, you're the most informed person in the world about that stock. So for me to come in and sort of tell you that you should sell it or not sell it is it's silly. Right? I don't know more than you do. So you're the one who needs to sort of assess whether you truly think that stock will continue to to run and how much, therefore, should you keep it or not. Right? But I'd say the vast majority of people should keep it for a while, at least as long as they're engaged in the company. Right? There comes a point where some people disengage from the company.