Significant Wealth Events
A life-changing wealth event not only shapes your financial future, it can also create a lasting legacy for your family and generations to come.
Liquidity events can be powerful catalysts for entrepreneurs and professionals, but navigating through the process can feel overwhelming.
Handled carefully, it can ensure financial security for you and your family, provide the wherewithal to plan your family’s legacy, support the charitable causes you care about most, or even fund the launch of another business.
Types of Wealth Events
There are several types of significant wealth events, including:
- Business sale
- Capital markets transaction (e.g. IPO)
- Significant inheritance
- Exercise of stock option
Whatever the case, your upcoming liquidity event represents an unparalleled opportunity to take charge of your financial future.
Planning for Successful Wealth Events
Successful wealth events don’t happen by chance. They are the result of careful planning between you and your advisor.
While everyone’s circumstances are unique, here are the key issues you’ll want to address in advance of your wealth event.
1. Understand Your Tax Liability
How much you pay in taxes, now and over time, will depend on many factors, including whether you are paid in cash or stock in an acquiring company, whether you receive cash all at once, in a lump sum, or through a series of installments. Work with us to prepare and plan for minimizing your future tax burden.
2. Diversify Your Investments
If you’re like most business owners, your wealth has always been concentrated in the single company you’ve devoted your life to. Now that you’ve converted some of your ownership interest to cash, you’ll have the opportunity to build a more broadly diversified portfolio.
Before doing so, it’s important that you and your advisor discuss your ongoing needs for income, capital appreciation, and risk management, and This is critical to constructing a portfolio that can achieve your objectives without taking on an inappropriate amount of risk.
In addition, now that you have a larger portfolio, you may be able to invest in specialized assets like private equity, venture capital, and other alternatives, which have historically provided excellent diversification potential, since they move in different cycles from publicly traded assets.
3. Plan for Your Legacy
A liquidity event may be the first step in creating your legacy for future generations, but it doesn’t stop there. You’ll also want to establish gifting and trust strategies that can maximize the value of your loved ones’ inheritance while keeping estate and gift taxes to a minimum.
4. Establish a Charitable Giving Plan
Now is the time to think seriously about how you’ll support the charities that are important to you – whether through a planned gift included in your estate, a charitable lead or remainder trust or by establishing your own family foundation or endowment.
Your advisor can help you develop a strategy for charitable giving that focuses your efforts for higher impact, while also achieving your wealth planning and tax management objectives.
5. Decide What to Do Next
The liquidity you receive from the sale or public offering of your business can provide capital to launch the next phase of your life.
Whether you want to retire, devote more time to volunteering or start another company, be sure to discuss your financial and personal goals with your advisor and develop a plan to realize these goals post-transaction.
The wealth planning issues surrounding liquidity events are complex and highly personal, so any strategy should reflect your unique priorities, preferences and constraints.