You’re sitting at a coffee shop when your phone buzzes with a text message you’ve been nervously awaiting all morning. “Everything is signed. Congratulations!” fills the screen—a windfall event has just occurred.
Perhaps you’ve just sold your company, or a significant investment is finally paying off. In many cases, these events are years in the making. Rarely do these things come as a surprise, yet for many, two words dominate their thoughts next: ‘Now what?’
The ink is dry, and your world is different from what it was just moments ago. You may have no idea what comes next, but how this event impacts you, your friends, your family, and your community is entirely up to you now.
If money is a microphone for your values, then a windfall is your chance to deliver a ‘State of the Union’ to those in your orbit.
The reality is that much of what happens next should have already been decided with planning done before this event. Your financial and life priorities going into the event should have played a factor in the negotiations.
Post-windfall, it’s important to know: do you want to go back to work in another field? What hobbies are you interested in pursuing: mountaineering, golf, travel, or cooking in earnest? Knowing what you want from your life after your company sale is just as important as knowing how to pay for it. Those conversations begin months or even years before any business sale, as compensation structures, terms, and strategies to improve your company’s attractiveness to buyers are pillars of our wealth management offerings.
The biggest question, and one only you can answer: how much do you need for your dream lifestyle? That’s a question for your financial plan and loved ones. No one can answer “How much is enough?” without knowing what you want. That process can take years and isn’t something you determine after a sale or after a prospective buyer appears. Knowing your goals is fundamental to determining if a sale makes sense, regardless of the number being offered.
While every situation is different, one of the highest priorities, when a windfall is coming, should be consulting your advisor and tax professional beforehand.
I spoke with Kelly Rangel, CPA, with Calvetti Ferguson in Houston, TX, who has worked with dozens of clients through company sales and executing stock options. She has a few tips and questions for you to consider if you think you could be looking at a windfall in the coming year.
Kelly and her team consider all tax tools available before a liquidity event. It’s situation-specific, but their approach even considers halting the generation of ordinary taxable income that would be subject to the highest marginal tax rate, currently 37%. Additionally, from an estate tax perspective, if the value of the shares is expected to eventually push a taxpayer’s estate over the lifetime exemption (currently about $13 million per person), her clients may consider gifting the shares outside their estate before the transaction to a trust with their children or spouse as beneficiaries. The critical value to understand in this case is how much control the owner wants to keep as they manage the potential 40% estate tax that could apply down the road.
In summary, it’s crucial that your entire financial team, especially your advisor and tax professional align on a solid strategy before a liquidity event occurs.
At LotusGroup, it’s our job to ensure the right conversations are happening from beginning to end. We believe that to ‘Make Life Count,’ you should make every decision count toward your ultimate goals.