🍞 Is Your Exit Plan Half-Baked? Read This

☕ Good morning SenseMakers!

Let’s say you’re building something extraordinary, and now you’re staring down the exit that could redefine your family’s financial legacy. But if you’re focused solely on valuation and not strategy, you might be leaving millions on the table.

The truth is, whatever top-line figure you’re staring at an exit always comes with a bit of a panic attack when you see how much taxes threaten to eat. The difference between walking away with $50 million versus $75 million after tax often comes down to moves made 18 to 36 months before the exit event..

Today, we’re unpacking the advanced (and underused) wealth preservation strategies founders use before they sell to minimize tax drag, protect capital, and architect generational wealth. 

I’m talking high-level moves that only the seriously dialed-in founders and high earners are thinking about. Not “hire a good CPA” stuff. We’re diving into the kind of tax engineering that can mean the difference between a one-time windfall and a multi-generational legacy.

Here is a YouTube short I recorded breaking down this important topic…..

📦 Entity Restructuring: The QSBS Chess Match

Start with the end goal in mind, then build the structure backwards.

Sounds simple enough, but what does that mean, exactly? 

Qualified Small Business Stock (QSBS) offers a powerful federal exclusion: up to $10 million (or 10 times the basis) in capital gains, tax-free. But you need the proper structure and timing. 

To qualify for the gain exclusion under IRC §1202, the stock must be held for at least five years, and the issuing company must have been a C-corp for substantially the entire period. 

Go further with “QSBS stacking”: gifting shares to your spouse, adult children, or trusts before a valuation spike. If done correctly, each recipient gets their own $10M QSBS exemption, potentially multiplying tax savings across your family tree.

Results will vary and it’s highly recommended you work with a financial planner with explicit experience doing this. 

Also, don’t fall into the pitfall that state tax rules often differ from the federal QSBS guidelines. And some states ignore QSBS altogether.

🏛️ Pre-Sale Estate Planning: Win the Valuation Arbitrage

Here’s a smart wealth transfer trick: Give away growth, not cash.

Grantor Retained Annuity Trusts (GRATs) shine when valuations dip. It’s a temporary trust where you “lend” business equity to the trust and get paid back over a fixed term (typically 2–5 years). 

Any growth above a minimal IRS-set return (called the §7520 rate) passes to your heirs, gift-tax free.

Some founders use it surgically by funding a GRAT during a valuation dip (say their company’s worth $200M now, but you expect big growth), and they set it up to repay them the initial value plus a tiny annual return. 

When the company sells for a larger amount a few years later (say $800M), everything above that minimal return is pure upside, transferred outside their estate without gift taxes.

Prefer more control? SLATs (Spousal Lifetime Access Trusts) allow one spouse to benefit from a trust funded by the other. Do it early, way before any sale talks, to avoid IRS scrutiny.

Defined-value clauses can adjust gifted equity to match final valuations, shielding you from unexpected gift tax bills.

📊 Income Timing: Take the Deal, But Sequence It

Liquidity events rarely come in one clean check. Think cash, earnouts, equity rollovers. Each type gets taxed differently, and each is a planning opportunity.

For example, installment sale treatment spreads tax over time. Profit participation instead of employment-based earnouts may convert income from ordinary to capital gains. If you’re getting equity in the acquirer, structure it to qualify for new QSBS benefits post-transaction.

The bottom line is to negotiate payment terms to your advantage. That might mean structuring payouts to align with favorable tax treatment, smoothing income across years, or delaying recognition into a lower-tax year. However, get this: it can also be leveraged in your exit. 

When you’re flexible on timing or willing to roll equity, you can often extract concessions elsewhere: a higher multiple, better earnout mechanics, or even post-exit influence. 

If done correctly, strategic structuring (if it’s available to you) can be an excellent deal sweetener. 

💼 Making Sense of Financial Planning for a Business Exit

You don’t build an eight- or nine-figure business without strategy, so don’t exit without one either.

Quick tax low-hanging fruit might be able to save you a (tiny bit), but when it comes to a mammoth task of (millions or tens of millions), there aren’t shortcuts. It comes down to playing a multi-year game where the rules are complex, but the payoffs are massive if you plan ahead. 

Structuring for QSBS, transferring future appreciation through GRATs or SLATs, negotiating installment timing, it’s all part of the same chessboard.

But don’t stop there.

Build in optionality, such as layering in vehicles like Charitable Remainder Trusts or QOZ funds, to create long-term tax-free compounding. If international holdings are part of your picture, know how PFIC and CFC rules can eat your lunch, and how treaty strategies might offer protection.

And while you’re at it, document the why behind your planning. Future audits aren’t about what you did; they’re about proving you had a plan and a purpose.

An exit is a transaction. However, the wealth you accumulate (and pass on) stems from transformation, including the correct entity, trust, and timing architecture, long before your company reaches “go to market.”

Talk to a financial planner who lives in this world. The tax code, at these table stakes, isn’t something you can outsmart last-minute. You need a blueprint, and the best time for this blueprint is yesterday.

You don’t need to master every rule; you just need someone who knows how to build around them.

As always, I hope this helps you to Prioritize Your Version of a Rich Life.

Until next week!

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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