Rethinking wealth after a major liquidity event
By Craig T. Ayers, Senior Vice President and Senior Portfolio Manager, Whittier Trust
Later this year, the market may see a new wave of high-profile public offerings, with companies like SpaceX, OpenAI, and Anthropic frequently cited among potential entrants. If even a portion of these materialize, some founders, early employees, and top shareholders could find themselves billionaires practically overnight. This might look like a liquidity milestone, but it’s really an inflection point that impacts everything thereafter and can shift the goals of investment management for ultra-high-net-worth families.
Most significant wealth starts concentrated. But once wealth reaches a certain scale, the risks—including market exposure, tax burden, and reduced flexibility—become even more vital to consider. Concentrated wealth risk management requires additional strategy.
That’s when it’s up to us to ask, “What is this wealth meant to accomplish?” Organizing around that question provides a decision-making framework. Most clients’ objectives tend to align with one of three broad goals: preserving wealth across generations, deploying capital toward philanthropy in a tax-efficient way, and mitigating taxes while maintaining flexibility.
1. Multigenerational Wealth
For many families, the priority isn’t just reducing risk. It’s about doing so in a way that preserves long-term compounding and structures for generations.
Why it’s valuable
A combination of staged diversification and estate planning techniques can gradually reduce single-stock exposure while maintaining participation in market upside. Vehicles such as dynasty trusts allow assets to be transferred out of the taxable estate while continuing to grow across generations. Hedging strategies—such as collars—can further mitigate downside risk without triggering immediate tax realization, creating a bridge between concentration and diversification.
When it’s a fit
This approach is often most relevant for clients whose wealth significantly exceeds their foreseeable spending needs and who have a clear desire to build a multigenerational legacy. It is particularly effective when there is time to allow the newly implemented structures and compounding to work in tandem.
The risks
These strategies require thoughtful sequencing. Premature or overly aggressive diversification can disrupt compounding, while excessive reliance on hedging can introduce costs and complexity. Trust structures also require a significant clarity around governance, control, and family dynamics. Once implemented, they are designed to be durable—meaning reversibility is limited.
2. Philanthropy + Tax Mitigation
For clients with charitable intent, philanthropy offers a powerful way to both diversify appreciated assets and reduce tax exposure.
How it works and when it fits
Donating highly appreciated securities to structures such as charitable remainder trusts (CRTs) or donor-advised funds (DAFs) allows clients to avoid immediate capital gains taxes on the donated assets. In the case of a CRT, the donor can also receive a tax benefit and an income stream, while the remainder ultimately benefits charitable organizations. A similar strategy using a charitable lead trust (CLT) is useful with more immediate charitable intentions and an estate that is likely to be greater than the exemptions allowed. A DAF, by contrast, offers flexibility in the timing and selection of grants, while providing an upfront tax deduction.
This strategy is most effective when philanthropy is part of the core objective, not simply a tax-driven decision. It is particularly compelling in periods surrounding liquidity events, when embedded gains are high and the opportunity to reposition capital is greatest.
Where it could break down
The primary tradeoff is irrevocability. Once the assets are contributed, they are no longer available for personal use. In addition, while these structures can be tax-efficient, they involve administrative considerations and, in some cases, ongoing management. Aligning philanthropic intent with structural design is essential to avoid unintended constraints. It’s also important to have a client advisor who knows the family and understands the intricacies of the philanthropic structures.
3. Lowering Taxes While Preserving Flexibility
There’s also a more flexible approach focused on managing or deferring taxes while keeping some financial options open.
Why it works
Techniques such as variable prepaid forward contracts (VPFs), exchange funds (including ETF-based structures), and direct indexing can allow investors to reduce or defer capital gains while gaining a broader asset base. These approaches can help remodel a concentrated portfolio without triggering an immediate tax liability. In parallel, securities-based lines of credit (SBLOCs) can provide liquidity without requiring asset sales, offering short-term flexibility.
When it suits
These strategies can be appropriate for those who are not ready to fully exit a concentrated position but want to begin managing risk and liquidity more actively. They are particularly useful when there is uncertainty around timing—whether due to market conditions, lock-up periods, or personal considerations.
The tradeoffs
Many of these structures involve fees, complexity, and constraints on liquidity or control. For example, exchange funds typically require long holding periods, while VPFs come with contractual obligations tied to future share delivery. SBLOCs, while useful for liquidity, introduce leverage and require careful risk management. It’s important to work with an advisor adept at evaluating these not just for their tax advantages but also in their broader strategic context. Direct indexing has a couple flavors. In its most simple form, a large number of securities are purchased and optimized to a benchmark. Winners are kept while losers provide tax losses to offset gains. Over time, the losses are valuable, but you end up with a large basket of securities. Leveraging the money and securities contributed has recently become much more popular and can be powerful. However, exiting the strategy tax efficiently can require additional contributions.
A cautionary tale
The “buy (or in the case of founders – build), borrow, die” is a wealth strategy where an investor buys and holds appreciating assets (e.g., equities, real estate, private businesses), borrows against them instead of selling to fund spending (using margin loans, SBLOCs, or pledged asset lines), and then passes the assets at death. At that point, heirs typically receive a step-up in basis to fair market value, eliminating the embedded capital gains tax. The result is long-term tax deferral during life and potential permanent avoidance of capital gains tax, while still maintaining liquidity via borrowing.
Still, it can break on the balance sheet. Leverage is the issue. If asset values gap down, there may be exposure to margin calls and forced selling at precisely the wrong time. Cost of carry matters. Rising rates compress or fully eliminate the benefit of deferral. Liquidity isn’t guaranteed, especially with concentrated or private assets, and the lenders can tighten the terms. In addition, the strategy is policy-dependent. Step-up in basis and estate exemptions are not static. An estate tax of 40% federal above the exemption may still force realizations. Push the leverage too far, and you’ve built a structure that’s highly sensitive to both market drawdowns and funding conditions. That is exactly when you don’t want fragility.
Integration: Combining Strategies for Better Outcomes
In practice, the most effective approach is rarely singular or one size fits all. Outcomes usually improve when strategies are combined to reflect both financial and personal priorities.
An integrated framework might include staged sales as the core mechanism for diversification, complemented by hedging to manage near-term risk. Tax deferral strategies such as VPFs or exchange funds can be layered in to smooth the realization of gains, while philanthropic vehicles like CRUTs or DAFs can address both charitable intent and tax efficiency. Finally, a portion of assets may be directed into long-term structures such as dynasty trusts to support multigenerational goals.
Often, liquidity, control, and tax efficiency are in tension. Optimizing one dimension requires compromise in another, but the right advisor can help balance the objectives for the best outcome.
Perspective Shift
One of the most common pitfalls in managing concentrated stock positions or wealth is over-optimizing for taxes at the expense of overall risk. While minimizing tax liability is important, it should not overshadow broader considerations such as portfolio resilience, family objectives, and long-term flexibility.
The appropriate strategy will vary based on the size of the position, the client’s time horizon, and the intended use of the capital. What works for a founder with decades of runway may not be suitable for a second-generation family focused on capital preservation.
As liquidity events accelerate—and as more individuals find themselves navigating the transition from managing concentrated stock positions to diversified capital—the need for a more intentional framework becomes vital.
The primary question isn’t: “What should I do with this stock?” Instead, it should be: “What should this wealth do?”
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Craig T. Ayers is a Senior Vice President and Senior Portfolio Manager in Whittier Trust’s San Francisco office, where he specializes in working with high-net-worth individuals, families, and their philanthropic foundations to create customized investment portfolios.