Family Office Definition: Variable Prepaid Forward Contracts
Variable Prepaid Forward Contracts definition: Variable prepaid forward contracts are entered into by individuals wishing to lock-in equity value and defer capital gains tax. The contract requires transfer of shares to a brokerage firm for holding during the term of the contract. At the time of transfer, the owner receives a large majority of the shares current fair market value. However, ownership is not fully transferred and capital gains income is not recognized until a later date. The brokerage firm accepts all losses during the term of the contract and shares in the gains. An advantage of this strategy is the ability to turn concentrated stock positions into cash for diversified investing.
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