If you’re in your 20s, 90s, or somewhere in between and know that you have a liquidity event on the horizon, you need to start thinking about your estate plan now to be able to shield assets effectively.
I have quite a few videos focused on the changes in estate tax set to go into effect in 2026, how that impacts people, and how it affects business owners. One critical aspect for business owners to consider is their succession plan—not just related to what happens when they pass away, but also for the business owner who will go through a liquidity event well before that time. This could be a business owner in their 20s, 30s, or 40s, who likely has a lot of life ahead of them, or someone in their 60s, 70s, or 80s, who may not be close to passing away. No one knows when they’ll pass, but the point is that for the pre-liquid business owner with a sale in mind—whether it’s a complete or partial liquidity event—you really need to start estate tax planning and trust planning now.
It’s essential to get assets out of your individual name and into trust, whether it’s for your benefit, your family’s benefit, or the benefit of key employees, or whoever it may be. This planning is crucial for shielding assets from transfer taxes when you eventually pass away. Often, when people think about a liquidity event, they focus on how to maximize the transaction’s value. They might shift their focus away from running the business and instead concentrate on what they’ll do once they receive a large payday. However, they may not be as tax-efficient as they should be. They might focus on the income tax aspect but overlook long-term estate tax implications.
For a business owner, it’s necessary to figure out how to provide liquidity to pay for estate taxes, which often leads to the business being sold after the owner dies. Along with the estate tax, there will also be capital gains on whatever you sell to come up with the liquidity to pay for the estate tax. So, whether you’re 20, 90, or somewhere in between, if you know you have a liquidity event coming up, you need to think about your estate plan now. This will help you shield assets from estate tax, minimize income tax liability or capital gains tax, and address a critical asset protection component in the trust planning process that is often missed and not discussed enough.