Richard and Susan: Preparing for What Comes After a Business Sale

We began by reviewing the possible sale structure with the transaction team, tax professionals, and estate counsel. The main reason was to identify decisions that needed to be addressed before an agreement became difficult to change - including ownership structure, potential earnout terms, employee incentive obligations, and how proceeds could be directed at closing. We also outlined a pre-close checklist for trust accounts, personal accounts, tax reserves, and short-term cash management. Now, let's look at the practical side: the goal was to avoid having a large amount of cash arrive before the household had a clear distribution and account structure in place.

A potential transaction created a number of tax questions that couldn't be answered by looking only at the sale price. We coordinated with the family's tax advisors to review the difference between asset-sale and stock-sale treatment, potential state-tax exposure, estimated-tax timing, and the treatment of future contingent payments. Given that residency planning and transaction timing may not line up perfectly, we also reviewed what documentation and professional analysis would be needed if the family made a move before a later payment or earnout. The work focused on identifying tradeoffs early and separating planning opportunities from assumptions that needed further legal or tax review.

Their existing trust structure had created meaningful planning opportunities, but it also raised important access and control questions. We worked with estate counsel and the trustee to review ownership, distribution provisions, trustee responsibilities, and the mechanics for receiving business-sale proceeds. We also reviewed whether future family gifts, charitable commitments, insurance planning, and a possible second-home purchase should be funded personally or through trust assets. The focus was protection first - making sure legal documents, account registrations, beneficiary designations, and investment authority were all aligned before assets moved.

Before making long-term allocation decisions, we separated the expected proceeds into distinct buckets: taxes, near-term spending, major purchases, charitable giving, and long-term diversified investments. That review included current cash reserves, personal spending that had historically been paid through the business, and the timing of anticipated expenses. We then built a process for consolidating outside accounts, reviewing the existing allocation, and establishing a diversified investment framework for funds not needed in the near term. The main reason was to avoid forcing investment decisions before the household had clarity on liquidity needs, distributions, and the amount of risk they were comfortable taking.