Don't blow the dismount! Wealth managers talk tax planning prior to liquidity events

Sticking the landing is not just vital for gymnastics routines, it’s paramount for liquidity events too.

And that’s why advisors say the years leading up to the sale or succession of a business require huge preparation, especially when it comes to tax planning, to reduce the possibility of stumbling when it comes time to dismount.

Jeff Getty, chief tax strategist at Callan Family Office, for one, says the biggest mistake is treating transaction tax planning like annual tax planning. He describes annual tax planning as being episodic and transaction planning as architectural. And in his view, the tax result is not created at closing, it is shaped over time through decisions about ownership, entity structure, trust design, charitable intent, state residency, asset protection, and post-sale capital deployment.

“Waiting too long turns planning from a design process into a salvage exercise. It happens because founders are focused on building the business, and a future exit feels uncertain until it suddenly becomes real. That uncertainty creates the false sense that planning can wait. But transaction tax planning is not static. It should be evaluated, reviewed, and refined as the business grows, the owner’s goals evolve, and the likely transaction path becomes clearer,” Getty said.

Getty believes the strategies that move the needle are those that require time, sequencing, and advance positioning. He says qualified small business stock planning needs to be addressed before qualification or ownership issues become difficult to fix. Loss-generating strategies designed to offset future sale proceeds need time to develop, season, and align with the expected transaction economics, according to Getty.

“Charitable transfers through split-interest charitable trusts, donor-advised funds, and private foundations need to occur before assignment of income issues arise. State tax planning through Delaware, Nevada, and South Dakota trusts should be completed before residency and ownership facts become difficult to defend. Asset protection through offshore asset protection trusts, domestic asset protection trusts, limited liability companies, and similar structures is strongest before creditor or transaction pressure exists,” Getty said.

The strategies that typically lose the most impact when delayed in his view are leveraged estate and gift tax strategies, such as grantor retained annuity trusts, spousal lifetime access trusts, family limited partnerships, and other equity transfer structures.

“These strategies can still be effective, but they are materially enhanced when valuation discounts are available and future appreciation can be shifted before the transaction becomes too defined. If planning waits too long, that valuation enhancement may be reduced or lost, which will cause the strategy to lose impact,” Getty said.

Put simply, Getty stresses that the advisor’s job is to identify the key decision points, determine what is time-sensitive, what can be deferred, and what should simply be monitored so the founder can keep building the business while preparing for the consequences of success.

Along similar lines, Jacobo Taurel, managing partner at Activest Wealth Management, says a major mistake is treating the liquidity event as a date on the calendar instead of a five-year planning window.

“Founders wait until a term sheet is in hand to start thinking about gifting equity, funding trusts, or structuring around Section 1202. By then the IRS sees the transaction value, and what could have been transferred at a low basis becomes very expensive to move,” Taurel said, adding that such oversight generally happens because the founder is busy running the company and most of their advisors are reactive rather than coordinated.

According to Taurel, the “cadence question” is the one most advisors get wrong. He says founders are not going tolerate monthly check-ins about a sale that’s still four years out, and they shouldn’t have to. What works in his opinion is being useful in the years when there is no exit conversation: cash management, key-person planning, family liquidity, or in other words, “the boring work that signals you’re a partner and not a salesperson waiting on a transaction.”

Timing wise, he says the exit planning itself should be paced to the business, not the advisor’s calendar. A short quarterly working session, one annual deep dive with the CPA and estate attorney in the room, and an open line when something material changes on the business side.

“The advisors who keep the relationship are the ones who bring frameworks instead of products, and who are willing to coordinate with the founder’s other professionals rather than compete with them,” Taurel said.

Finally, Ben Domingue, founder & managing partner at Family Office Partners, believes founders spend the vast majority of their time focused on enterprise value, valuation multiples, and negotiating the deal while spending very little time on transaction structure, ownership structure, and tax strategy. In his view, most owners rely exclusively on their existing advisors, who are often excellent at annual tax compliance and business tax planning, but may not specialize in advanced transaction advisory, estate planning structures, or pre-transaction tax strategy. 

“Current advisors absolutely should remain at the table, but owners also need specialists whose entire practice is focused on transaction structuring, trusts, estate strategies, and sophisticated tax planning related to liquidity events and recurring transactions. Many owners are not aware these professionals exist, and often mistakenly assume the title of CPA, Financial Advisor or Estate attorney all mean the same skill set exists,” Domingue said.

Added Domingue: “Rarely does one advisor possess deep expertise in both tax compliance and sophisticated transaction structuring involving trusts, legal entities, gifting strategies, and estate design.”