Basie has taken risks all of his life, most notably through his business. His intention is to re-create a "paycheck" from his portfolio without invading his principal (in inflation-adjusted terms), which he will leave to his children. However, first he would like to pay off the outstanding mortgage balances on his primary residence, as well as on his vacation home, which total $4 million. Second, he would like to establish a charitable entity (for example, a private foundation or charitable trust), for which he will need advice. He hopes to fund it with $5 million. Finally, he would like to gift his brother and each of his children $500,000.

The Basies’ spending over the past five years has averaged $750,000 per annum. Given the couple’s desire to travel comfortably, they anticipate maintaining a similar cash flow in the future. Admittedly, Basie is not an expert on investments or asset allocation, but he has paid attention to the markets fairly regularly since the 1980s and believes that he would like to hold the bulk of his assets in bonds (roughly 70 percent), with the remaining assets in U.S. equities. He does not know what hedge funds or alternative investments are, and, although his impression of them is that they are very risky, he is still willing to consider them. Basie sees no obvious need for commercial real estate (REITs), considering he owns two residential properties and predicts more trouble in the housing market. Finally, Basie likes the idea of buying and holding a few concentrated stocks in his IRA because the tax will be deferred. Basie notes that after all initial payments and distributions are made, he will be left with a portfolio of $19 million, which should sufficiently support his spending and lifestyle. He considers the annual spending rate of 4.5 percent low, and reasons that any competent investment advisor should be able to deliver such a modest return. —The Editors

RESPONSE:
At Boston Private Bank & Trust, we consider that a solutions-driven approach to solving problems is superior to a product-driven approach in terms of providing lasting client satisfaction. We in the Investment Management & Trust group took this approach with the Basies.

Fellow professionals in the field realize that considerable thought and analysis are necessary in every client situation—including this one—and that many possible solutions exist. On the surface, the Basies have what looks like a set of unlinked objectives. However, the couple’s asset pool would appear adequate to achieve their objectives—if the resolutions could be effectively and efficiently connected while still leaving room for unplanned contingencies.

The Basies face a big challenge in deciding how to ensure inflation-protected cash flow every year for the next 30 to 40 years and still have enough for gifts that will go to charity and to their children. The specific issues the Basies will have to resolve to determine their strategy include the following:

• Debt reduction
• Charitable giving
• Intrafamily gifts
• Portfolio construction

The Basies have a $30 million pool of funds to work with, including a $3 million IRA. They would like to create a $750,000 annual paycheck, pay off their two mortgages, satisfy philanthropic desires and gift monetary sums to family members.