Many private investors hold concentrated or restricted equity positions. Generally, this is a bar to proper diversification. This is an overview of certain methods on how to deal with this issue.

Restricted Stock is stock that is acquired though an employee stock option plan or other private means and which may not be transferred. Restricted stock may be forfeited if any of the SEC rules related to it are broken.

Concentrated Stock is stock that has been accumulated over time, through ownership in a public company, or through a sale of a private company to a public one.

Both Restricted and Concentrated Stock tend to have a low cost basis for an investor. Therefore, if a holder were to sell in order to diversify, he would trigger substantial capital gains taxes. In addition, a client of these types of stock have an emotional attachment to the stock which make them reluctant to sell.

The choice between retaining the position (and the associated risk) or liquidating (and paying the capital gains tax and using the after-tax proceeds to diversify) is a difficult one.

We have a number of tax strategies available to our clients who find themselves in this position.