by Steve Fillingim

Estate planning and charitable techniques. Many individuals with substantial positions in one stock look for strategies that can help reduce overall income and estate tax liabilities and achieve philanthropic goals. There are charitable giving strategies that can provide you a current income tax deduction, a continuing source of income for you, and a way to potentially avoid paying current capital gains tax on appreciated assets. Some strategies also can help shield the donated assets from estate taxes.* And when you consider current income tax rates and estate tax rates, you and your heirs may benefit substantially from these techniques.

Borrowing against your stock. This alternative helps you generate cash without selling your stock and avoids generating a current tax liability. You diversify your portfolio by purchasing other stocks with the loan proceeds. When you borrow on “margin,” or use your stock as collateral, you can often borrow 50% (and in some cases more) of your position’s market value at competitive interest rates as long as the stock meets certain minimum qualifications.

Margin borrowing involves a high degree of risk and may not be suitable for all investors. With this strategy you must maintain a minimum amount of equity in your margin account. Market conditions can magnify any potential for loss. If your collateral stock’s price drops, you may receive a margin call, which means you will be obligated to bring your account into balance by depositing cash or other stocks immediately. Otherwise, you may be forced to liquidate all or a portion of your position.

Understand your alternatives. When it comes to managing the wealth you’ve accumulated in one stock, you need to understand the suitability of each alternative in relationship to your individual circumstances. In fact, one or more of these alternatives may be inappropriate for your situation. The appropriateness of certain alternatives also depends on market behavior and the availability of particular contracts, stocks or products. Your Financial Advisor, working with your tax and legal advisors, can help evaluate these and other strategies.

* EGTRRA provides for the repeal of federal estate taxes (and the “step-up” in cost basis at death), during 2010.

However, these rules could be retroactively reinstated. Contact your tax advisor for updated information.

This article was written by Wells Fargo Advisors and provided courtesy of Steve Fillingim, 1^st Vice President of Wells Fargo Advisors. Further information can be obtained by calling him at (951) 699-1833.