Home' Island Sun : ISN 072415 Contents 43
ISLAND SUN - JULY 24, 2015
Several years ago, I took on an estate-planning client,
“Kevin,” who had worked at the Eastman Kodak Compa-
ny for his entire adult life. He had earned stock bonuses
in the company over the years, so that by his retirement a
significant portion of his net worth consisted of Kodak stock.
Kevin asked me to draft a revocable trust for him, and as part
of the work, I interacted with his financial advisors to make
sure that his portfolio would be transferred to his trust.
Because so much of Kevin’s net worth was tied up in one
stock – Kodak – I remember the financial advisors continually
urging Kevin to diversify. “You shouldn’t have all of your eggs in the Kodak basket,”
Kevin scoffed at the notion. In 1976, Kodak accounted for 90 percent of film and
95 percent of camera sales in America. Until the 1990s, it was regularly rated one of
the world’s five most valuable brands. In 1988, Kodak employed over 145,000 work-
ers worldwide, and in 1996 its sales peaked at $16 billion, with a market capitalization
of $28 billion. They were an effective category monopoly.
“Why should I sell the stock of a company that has been so good to me over the
years and continues to perform so well?” he said. “Besides, if I sell the shares I will
end up paying the IRS substantial capital gains taxes, and lose any future dividends and
chance at appreciation on those shares.”
So Kevin held firm.
He died in 1999. By then, a gadget called a “digital camera” appeared. Because
digital cameras were clunky with limited clarity and storage capacity, Kodak didn’t see
them as a major threat.
When Kevin died, the financial advisors again urged his son, “Ed,” who served
as Kevin’s successor trustee to administer the estate, to sell the Kodak shares from
the estate portfolio. “You are in a short term market now,” they said, “meaning that
between the date of your father’s death and the date that his estate administration
winds up and is distributed to the family, the stock could take a precipitous drop in
value. Since the estate taxes are based on the date of death value, it doesn’t make any
sense to have a portfolio so over-weighted in one company’s stock.”
The financial advisors pointed out that one of the reasons Kevin did not sell his
Kodak shares – because he didn’t want to pay a capital gains tax – no longer existed.
As of Kevin’s date of death, his portfolio received a “step-up” in its tax cost basis equal
to the fair market value. Selling the Kodak shares would have resulted in minimal, if
any, capital gains.
Ed didn’t budge. “Our family has an emotional attachment to Kodak,” he explained.
“It’s where dad worked. He loved that company. I just can’t sell it.”
By 2005, digital cameras became more ubiquitous and better equipped. People
loved taking pictures that they could instantly see and only print those that came out
well. They no longer had to develop rolls of film hoping that some of the shots would
By 2007, Kodak was losing money, and in 2008 the iPhone included a built-in digi-
tal camera. Kodak’s sales plummeted.
In 2012, the company declared bank-
ruptcy, with its workforce reduced to
14,800. In that same year, Instagram – a
startup company that created digital picture
applications used on iPhones and Androids
– w as bought by Facebook for $1 billion.
Instagram had 13 employees at the time.
Let this be a warning to all who believe
that having a portfolio heavy in just one or
a few securities is prudent. When someone
passes away with such a portfolio, the
step-up in tax cost basis usually eliminates
or sharply reduces the impact of capital
gains taxes. So the reason many families
won’t sell is therefore largely due to emo-
tional attachments, or the feeling that the
company they invest in isn’t vulnerable like
If you feel this way, allow me to leave
you with this thought. A generation ago,
the average duration of a company that
landed on the Fortune 500 list was 57
years. By 2005, that duration was reduced
to 17 years, and by 2020, pundits believe
that the average company will rotate off
the Fortune 500 list in less than seven
We live in a world of rapidly changing
technologies and business practices. Competition isn’t from around the block; rather,
it’s from around the globe.
When a surviving spouse or other family member depends upon the viability and
health of a financial portfolio, it only makes sense to take emotion out of the equation,
and make decisions based on present facts and circumstances. The tax laws work in
our favor to so accomplish. Don’t let emotion sway prudent investment decisions.
©2015 Craig R. Hersch. Learn more at www.sbshlaw.com.
During Hurricane Season, Don’t
Forget To Prep Your Finances, Too
The 2015 hurricane season is now under way, and while Floridians have so far
remained free from a severe storm, natural disasters can strike at anytime –
some without warning.
Chief Financial Officer Jeff Atwater encourages Floridians to remember an often
forgotten part of disaster preparedness: financial planning. To help Floridians plan suc-
cessfully, the Department of Financial Services has prepared an Emergency Financial
Preparedness Toolkit to help Floridians keep their personal financial information orga-
nized for easy access during or after an emergency.
“We’re already into hurricane season but this being Disaster Education and
Awareness Month, it’s the perfect time to take a few minutes to download our toolkit,
fill it out, and store it in a safe place,” said Atwater. “As Benjamin Franklin famously
said, ‘An ounce of prevention is worth a pound of cure.’”
This easy-to-use toolkit contains simple tips – like keeping a photo or video log
of your possessions on a thumb drive – but, more importantly, it provides a space to
keep track of account information, important phone numbers, and post-emergency
repairs and claims. Having all of this information in one compact place is imperative in
an emergency, and this toolkit makes it easy to do just that.
The Emergency Financial Preparedness Toolkit is available online at www.myflori-
dacfo.com/Division/Consumer/Storm. This website also contains a wealth of consum-
er-friendly disaster preparedness information.
And Short Term Markets
by Craig R. Hersch, Florida Bar Board Certified
Wills, Trusts & Estates Attorney; CPA
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