Planning for a Liquidity Event

A liquidity event is any moment a large amount of value becomes available to you at once. For the families we work with, that usually means one of the following: the sale of highly appreciated real estate or a real estate portfolio, the sale of a concentrated public stock position or equity compensation after an employer’s IPO or a vesting event, a significant inheritance or distribution from a trust or estate, or another windfall such as a legal settlement or insurance proceeds.

These events matter for planning because they tend to do two things at once. They can trigger a substantial tax bill, and they materially increase the size of your taxable estate. Whether you can reduce the tax depends heavily on timing — which is why the planning conversation should happen as early as possible.

The core idea is to move value out of your taxable estate, and in some cases out of the reach of capital gains tax, before the sale price is locked in. When you still control the timing of a sale, you have the most options. We generally work with a combination of the following, chosen to fit your situation:

Gifting a portion of the asset to an irrevocable trust before the sale, so future appreciation and the sale proceeds grow outside your estate. Contributing the highly appreciated real estate or stock to a charitable remainder trust, which can sell the asset without immediate capital gains tax and pay you an income stream for life. And, at the state level, understanding how Colorado will tax the gain so there are no surprises.

No single tool is right for everyone. The right plan depends on how much of the asset you’re selling, your charitable goals, whether you need the proceeds for income, and how much of your lifetime gift tax exemption you still have available. Starting early is what lets us layer several strategies together rather than being forced into just one.

Ideally, before the asset is under contract — and the earlier the better. Once a sale is agreed, the value is effectively fixed, which eliminates the valuation discounts and the low-basis gifting opportunities that make advance planning so powerful.

Many of the strongest strategies also depend on a defensible, independent valuation and on the asset not yet being committed to a buyer. Gifts made while the outcome is still genuinely uncertain are far easier to support than gifts made the week before closing. As a practical rule, we like to begin conversations several months to a couple of years ahead of an anticipated sale. If your timeline is shorter, there may still be meaningful moves available, so it’s worth a conversation rather than assuming you’ve missed the window.

Yes, and for many families this is the single most effective step. When you gift a portion of an appreciating asset to an irrevocable trust before a sale, all of the growth between the gift and the sale — plus the sale proceeds themselves — passes to your beneficiaries free of federal estate tax.

Two features make this especially efficient when done early. First, a fractional interest — for example, a minority interest in an LLC that holds the real estate — can often be valued at a discount for lack of marketability and lack of control, so you use less of your lifetime exemption to transfer the same economic value. Second, if the trust is structured as a grantor trust, you can continue to pay the income tax on the trust’s earnings, which lets the trust grow undiminished and effectively transfers even more to your beneficiaries without using additional exemption. As of 2026, the federal gift and estate tax exemption is a permanent $15 million per person, or $30 million for a married couple, which gives most families substantial room to move value out of the estate before a sale.

A charitable remainder trust, or CRT, lets you contribute a highly appreciated asset before the sale, have the trust sell it without paying immediate capital gains tax, and then receive an income stream from the trust for a term of years or for life. Because the trust itself is tax-exempt, the full pre-tax value of the asset stays invested and working for you, rather than being reduced by a large capital gains bill at the moment of sale.

You also receive a partial income tax deduction in the year you fund the trust, based on the value expected to pass to charity at the end of the term. When the trust ends, the remainder goes to the charity or charities you’ve chosen, which can include a family foundation or donor-advised fund. For families who are charitably inclined and want to spread out or defer the tax hit from a sale while creating a reliable income stream, a CRT is often a natural fit.

When wealth comes to you rather than from selling something, the planning shifts from reducing capital gains to protecting what you receive and folding it into your own plan. A few priorities usually come first: understanding the income tax picture, including the step-up in basis that often applies to inherited assets and can significantly reduce future capital gains; deciding whether to hold the inheritance in a trust that protects it from creditors, lawsuits, and divorce rather than taking it outright; and updating your own estate plan, because a large inheritance can push your estate toward or past the federal estate tax threshold.

If the inheritance itself comes through a trust, how you receive and manage those distributions can have lasting tax and asset-protection consequences. This is a moment where a short planning conversation before you take possession can shape the outcome for decades.

The first priorities are protection and structure. Depending on the source and size, that can include holding the funds in a trust designed to shield them from future creditors and claims, coordinating with your tax advisor on how the proceeds are treated, and integrating the new wealth into your estate plan so it passes efficiently to the people you choose. Some settlements can also be structured to spread income over time. Because these situations vary so much by source, the right approach is specific to your circumstances, and it’s worth reviewing before the funds are committed anywhere.

Colorado taxes capital gains as ordinary income at its flat state income tax rate, on top of the federal capital gains tax and, for many sellers, the 3.8% net investment income tax. Colorado does not have a separate state estate tax or inheritance tax, so the estate-planning strategies on this page are aimed primarily on the federal estate tax and federal and state income tax on the sale.

Where you live at the time of a sale can matter, and so can how the transaction is structured. These are details we work through with your accountant and financial advisor as part of a coordinated plan.

For many families, yes. The current permanent $15 million per person exemption gives you more room, but a large liquidity event can still push an estate toward that line, especially for a married couple planning across two generations. Just as important, most of the value here isn’t only about the estate tax — it’s about reducing capital gains at the moment of sale, protecting the proceeds from creditors and divorce, and controlling how and when the wealth reaches the next generation. Those benefits apply well below the exemption, and Congress may change the exemption at any time. It has been changed many, many times before.

It depends on the event. For a sale you control, waiting until after closing costs you the strategies that only work while the asset is still held — the valuation discounts are gone, the proceeds are already in your estate at full value, and the chance to shift future appreciation to a trust has passed. For an inheritance or settlement, meaningful planning is still very much available after the fact, though some of the strongest protections are easier to put in place before you take possession. For a company liquidity event, planning options are even more important now. Either way, the earlier we talk, the more we can do.

We build a plan around your specific situation and coordinate it with your CPA and financial advisor so nothing falls through the cracks. That starts with understanding your goals for your family, your income, and any charitable intentions, then designing the combination of trusts, gifting, and protective structures that fits — followed by drafting, funding, and staying involved as the event unfolds.

If a major sale, an inheritance, or another liquidity event is on your horizon, reach out to schedule a planning conversation. The sooner we start, the more we can do.