Transferring Shares That Have Gone Up in Value to Pay a Withdrawal

Laurie Frederiksen on

Hi John,

I'm not sure why the other members would have an issue transferring your appreciated stocks. They have postponed recognizing the gains in them which is a good thing. Your club could also repurchase them immediately if they still liked the companies and then you'd own them with a stepped up basis.

It's all positive for the remaining members when you transfer shares of appreciated stock to pay a withdrawal.

Laurie Frederiksen
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On Tue, Aug 26, 2014 at 5:58 PM, John Rice wrote:

Of the 2 people that were charged the fee one of them would of taken 3 months of contributions to pay off and the other would of taken 7 months of contributions. One of the members left purely because he literally thought the end of the US was coming and wanted to pull all of his money out of the market before it collapse. The other one moved. As per the recommendation of Bivio we transferred our most appreciated stocks which didn't sit well with the remaining members.

John Rice

William C. Peterson on

Transferring appreciated stocks to pay off a withdrawing
member requires fewer shares (which have a lower cost basis)
because of the increased stock price. This means that the
club paid a lot less for those shares than their value at
time of transfer, and no one remaining in the club has to
pay any taxes on the gain!

Laurie Frederiksen on

This is very true except for the part where the remaining members never have to pay taxes on the gain. The gain is part of their gain on their investment in the club and they'll pay taxes on that when they ultimately withdraw. They are deferring taxes, but they aren't avoiding them. (unless they pass away and pass on their club ownership to their heirs with a stepped up basis)

Deferring taxes is usually recommended because of the time value of money.

But all tax decisions depend on your personal tax situation. As they say, consult your personal tax advisor who can go over the specifics of that if you have any questions.

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