A concentrated stock position is rarely solved once. It is managed, reviewed, and adjusted over time, with risk and tax weighed together against what you are actually trying to accomplish.
Many business owners and executives hold a large majority of their net worth in a single stock, whether from the sale of a company paid partly in acquirer shares, years of accumulated equity compensation, or a legacy holding passed down across generations. However the position arrived, it rarely stays the same for long. The price moves, the client's goals shift, and the tax consequences of a sale can change as well. Treating a concentrated position as a one-time purchase decision and then left alone misses most of what actually matters over time.
Managing a concentrated position well means asking two questions together: how much risk does the position carry, and what would it cost (in tax) to bring that risk down. Both questions get answered against the same backdrop of what the client is actually trying to accomplish with their wealth.
A Position That Needs Ongoing Oversight, Not a One-Time Verdict
A concentrated position does not stay the same size or carry the same risk indefinitely. Continued appreciation can make an already large position larger. A shift in the client's timeline, an approaching liquidity need, a change in estate plans, or a life event such as marriage, a new dependent, or a new charitable commitment can all change what the right answer is. Tax rules are not fixed either. A plan built around a position several years ago may no longer fit the client's situation today.
We review concentrated positions on the same regular schedule as the rest of a client's portfolio, not only when something has gone wrong. Every review starts with what the position needs to accomplish for the client, not simply how much risk it carries in isolation. A position being carried toward a future liquidity need is managed differently than one being carried toward a legacy transfer, even when the two positions look identical on paper.
Weighing Risk and Tax as One Decision
Reducing a concentrated position is not free. Shares sold at a gain create a tax bill, and that cost has to be weighed against the risk being reduced. Two tax considerations come up often enough to be worth understanding in their own right.
Step-up in basis. When appreciated stock passes to an heir rather than being sold during the original owner's lifetime, the tax code generally resets the recipient's cost basis to the stock's value on the date of death. Appreciation that built up during the owner's lifetime is effectively removed from the tax calculation, though appreciation from that point forward remains taxable if the position is later sold. For a legacy holding intended for the next generation, this can change the analysis considerably. Selling during the owner's lifetime locks in a tax cost that continuing to hold, and eventually passing the position at death, might avoid. That does not mean a legacy position should always be held until death. It means the concentration risk of continuing to hold has to be weighed against that potential tax benefit, in light of the owner's own time horizon, health, and comfort with the position, rather than assumed as the automatic answer in either direction.
The tax cost of selling. How a sale is taxed depends on how long the position has been held and how large the resulting gain is relative to the client's other income that year. A large sale completed all at once can push a client into a higher tax bracket for that year and increase exposure to the additional tax that applies to investment income above certain thresholds. Spreading sales across more than one tax year, coordinating with losses elsewhere in the portfolio, and timing sales around other income are all ways of managing that cost rather than accepting it as fixed.
A Plan to Reduce Exposure, When It Fits the Goal
Not every concentrated position needs to be reduced, and a lower-risk position is not automatically the right answer if it does not serve what the client is trying to accomplish. However, when reducing exposure aligns with the client's objectives and would give the client real comfort they do not have today, we build a plan to bring the position down deliberately, structured around minimizing the tax cost along the way rather than selling as quickly as possible. Several tools are worth understanding, and the right combination depends on the size of the gain, whether the holder is a company insider, and personal and philanthropic goals.
| Tool | What It Does | Key Tradeoff |
|---|---|---|
| Staged sale plan | Spreads sales across a preset schedule (a Rule 10b5-1 plan for company insiders), reducing the risk of selling everything at a single price and removing emotion from timing. | Gives up some flexibility to react to short-term price moves. Insiders face a mandatory waiting period before trading can begin. |
| Charitable gift of appreciated shares | Donating stock directly, rather than selling first and giving cash, generally avoids capital gains tax on the appreciation and supports a deduction based on the stock's value. | Deduction limits and carryforward rules apply, and recent changes to charitable giving rules make the timing of larger gifts worth reviewing with a tax advisor. |
| Exchange fund | Contributes the position to a pooled vehicle alongside other investors' concentrated holdings, in exchange for a diversified slice of the combined portfolio, generally deferring the built-in gain. | Typically limited to larger portfolios and accredited investors, and requires a multiyear holding period with limited liquidity. |
| Options-based hedge | Protective puts, collars, or prepaid variable forwards can reduce downside exposure without an outright sale. | Carries its own cost and can trigger complex tax rules if not structured carefully. This calls for coordinated tax and legal counsel, not a do-it-yourself approach. |
| Multiyear tax budgeting | Spreading sales across more than one tax year helps manage which capital gains bracket a given year's gains fall into and can limit exposure to the additional tax on investment income. | Requires patience and coordination with other income and giving. It works most effectively as part of a broader plan, not a single-year decision. |
A thoughtful plan often combines more than one of these tools: a staged sale for part of the position, a charitable gift of another portion, and a hedge on the remainder while the rest is sold down across several tax years. None of that requires solving the entire position at once. It requires a sequence, built around the client's goals and revisited as circumstances change.
Where Our Team Adds Value
We do not evaluate a concentrated position on its own. Every recommendation starts with the client's broader plan, whether that means retirement income, wealth transfer, or philanthropic goals, and works backward from there, coordinating the sale schedule, the charitable strategy, and any hedge as one plan rather than three separate decisions made on three separate timelines by three separate advisors.
We also treat this as ongoing work, not a single engagement. Positions are reviewed on a regular basis, the tax picture is checked against current law, and the plan is adjusted as the client's goals, the position, or the tax code change. The objective never changes: manage the position in service of what the client is actually trying to accomplish, not risk reduction or tax minimization as ends in themselves.
Managed, Not Just Decided
A concentrated position is rarely solved once. It is managed, reviewed, and adjusted as circumstances change, with risk and tax weighed together and the client's own objectives as the constant reference point.
We invite you to reach out to our team for a candid conversation about how we would approach your position.
Let's Talk — Phone: 480.386.0328 | Email: ctwalling@rbgcap.com | Web: www.rbgcap.com
Notes and Disclosures
C. Tyler Walling, CEPA®, is Director of Private Wealth Management at RBG Capital. This material is intended for informational purposes only and does not constitute individualized tax, legal, or investment advice. Rules governing step-up in basis, capital gains treatment, net investment income tax, Rule 10b5-1 plans, charitable deductions, and exchange fund eligibility are subject to change and vary by individual circumstance. Please consult your tax advisor and attorney regarding your specific situation before acting on any strategy described here.
Securities offered through Arkadios Capital, member FINRA/SIPC. Advisory services offered through Arkadios Wealth. RBG Capital LLC and Arkadios are not affiliated through any ownership.
