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Wealth Planning

5 Expensive Mistakes to Avoid Before and After a Liquidity Event

December 6, 2024

Teresa Greenip

Jason Shemtob

Ryan T. Nelson

Planning for a liquidity event, such as an IPO or merger.

When life-changing liquidity events like an IPO, merger or business sale are on the horizon, the stakes couldn’t be higher. Yet, too often, people rely on questionable advice from sources like Reddit threads, Slack channels, private communities or outdated articles—missing opportunities to safeguard their wealth.

To cut through the noise, we recently hosted a webinar designed for founders, executives and employees approaching an IPO or who have recently gone public. It also resonated with tech and biotech employees at high-growth companies like Databricks, Stripe and Chime, as well as individuals with equity compensation or those weighing tender offers or recapitalization events.

With years of experience guiding clients through these pivotal moments, we’ve identified the five most expensive mistakes people make before and after a liquidity event—and, more importantly, how to avoid them. Here’s a closer look at these common pitfalls and actionable steps to help you make the most of your financial opportunity.

Protect your wealth during life-changing milestones like IPOs, tender offers, mergers and acquisitions.

How to avoid paying excess taxes from a liquidity event

Mistake #1: Handing millions to the IRS

The risk: Without proactive tax planning, liquidity events can trigger significant tax liabilities that eat away at your wealth.

How to avoid it:

Understand the tax rules governing your holdings. Know how ISOs, NQSOs and capital gains (long-term vs. short-term) impact your tax bill. Timing your stock sales across multiple years can help manage your liability. It may be advisable to spread your tax cost over several years to reduce the overall tax incurred.
Consider the 83(b) Election: An 83(b) election allows you to pay taxes upfront on the fair market value of your restricted stock at the time of the grant. This strategy can significantly reduce your tax burden if the stock appreciates in value over time. To take advantage of this election, you must file it with the IRS within 30 days of receiving the stock grant.
Leverage QSBS exclusions: If your holdings qualify, the Qualified Small Business Stock (QSBS) exemption allows you to exclude up to 10 times your investment or $10 million, whichever is greater—or more—of capital gains from federal . Additionally, by using strategies like QSBS stacking—distributing shares into multiple trusts—you may be able to multiply the exemption amount, significantly increasing your tax savings.

Example

Ravi was granted shares valued at $100,000 at the time of the grant. When the shares vested, they were valued at $8 million. Ravi had made an 83(b) election, opting to pay the taxes upfront on unvested shares.

With the 83(b) election, Ravi pays ordinary income taxes of $50,000 and capital gains tax of approximately $2.9 million when he decides to sell the shares, for a total of $2.95 million in taxes.
Without the 83(b) election, Ravi pays ordinary income taxes of $4 million when the shares vest.

In this example, Ravi saved over $1 million in taxes and was able to control when the capital gains taxes would occur as a result of his sales.

Want a step-by-step guide to navigating tax strategies like 83(b) and QSBS?
Download Smart Money Moves – Managing QSBS, Equity Comp & Liquidity Events.

Why you should diversify your portfolio after a liquidity event

Mistake #2: Betting it all on one stock

The risk: Holding too much of your wealth in a single stock exposes you to significant market volatility and potential losses.

How to avoid it:

Create a diversification strategy: Gradually sell shares to reduce risk while managing tax liability. A staged approach can help protect your financial future.
Use tax-loss harvesting: Offset gains by strategically selling underperforming assets. This technique minimizes taxes and keeps your portfolio balanced. There are also more advanced tax-loss harvesting techniques that can allow you minimize taxes, without having to realize an offsetting investment loss.

Pro tip: Avoid waiting for a “perfect” stock price to sell. A disciplined approach ensures long-term stability, even in volatile markets.

Ready for a deeper dive? Watch our 30-minute webinar replay to see these strategies in action.

How to preserve your wealth with estate planning

Mistake #3: Letting the IRS take 40% of your estate

The risk: Without estate planning, a substantial portion of your wealth could be lost to taxes when passing assets to heirs.

How to avoid it:

Plan early: Use advanced tools like irrevocable trusts or GRATs (Grantor Retained Annuity Trusts) to shield wealth from excessive taxation.
Maximize generational wealth transfer: Strategic planning ensures that your heirs can retain more of the wealth you’ve built while minimizing estate taxes.

How to use charitable giving to reduce taxes

Mistake #4: Missing out on hidden tax breaks

The risk: Overlooking tax-saving opportunities in charitable giving can mean paying more taxes than necessary.

How to avoid it:

Leverage Donor-Advised Funds (DAFs): By contributing appreciated stock to a DAF, you can avoid capital gains taxes and receive a full charitable deduction for the fair market value.
Explore Charitable Remainder Trusts (CRTs): CRTs let you secure an income stream while supporting causes you care about. This strategy also reduces taxes and creates a lasting philanthropic impact.

Why an IPO is a new financial chapter

Mistake #5: Treating Your IPO Like the Finish Line

The risk: Viewing a liquidity event as the endpoint can lead to complacency, missed opportunities and unaligned financial decisions.

How to avoid it:

Build a holistic plan: Align your new wealth with long-term goals, such as retirement, philanthropy or major purchases.
Assemble a team of experts: Work with a wealth manager, CPA and estate attorney to ensure all aspects of your financial plan are optimized.

Pro insight: Liquidity events are the beginning of a new financial chapter. Proper planning ensures that your wealth grows sustainably while aligning with your life goals.

Not sure where to start? Schedule a consultation with one of our experienced wealth managers to build a plan tailored to your goals.

Take action: Avoid these costly mistakes

Liquidity events—whether an IPO, merger or acquisition—mark significant milestones in your financial journey. With thoughtful planning, you can avoid costly mistakes, minimize taxes and ensure your wealth aligns with your long-term goals.

Take the first step toward clarity. Download our guide, Smart Money Moves – Managing QSBS, Equity Comp & Liquidity Events, for actionable strategies to start planning today. Want to see how these principles work in real life? Watch our webinar replay to hear how our team helps clients navigate these challenges.

If you’re ready to take action, talk with us. Don’t navigate this complex process alone—partner with an experienced financial advisor who can help you make the most of your liquidity event.

Related resources for liquidity events

Teresa Greenip

Senior Manager in Wealth Management, Partner

Teresa joined Aspiriant in 2019 after a 14-year career in corporate finance. She became a manager at the firm in 2021. Her areas of expertise include financial planning, developing equity compensation, education planning and retirement planning.

Teresa holds a Bachelor’s in Business Administration with concentrations in Finance and Accounting from Emory University. She completed her financial planning credentials at the University of California-Berkeley in 2020 and earned the CFP^®certification in 2021.

In her free time, Teresa enjoys cooking, hiking, boxing, over-organizing her home in Alameda, Calif., crafting, gardening and chasing after her two young children. She enjoys volunteering to help new parents navigate financial planning topics. She has also been a long-time volunteer with Project Sunshine at UCSF Benioff Children’s Hospital – Oakland.

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Jason Shemtob

Director in Wealth Management, Partner

Jason joined Aspiriant in 2015 as an associate in Wealth Management. He has over six years of experience within the financial services industry, with four of those years dedicated to serving high net worth individuals and families. In addition to his client service responsibilities, Jason is also a member of Aspiriant’s Next Generation Committee and Salesforce Platform Committee.

Prior to joining the firm, Jason spent two years as a proxy research analyst at Glass Lewis in San Francisco.

Jason earned a B.S. degree in Psychology from Syracuse University and graduated Cum Laude. Following college, Jason served as an AmeriCorps volunteer in Watsonville, Calif., and then earned a Master’s in Finance from Golden Gate University.

Jason lives in the San Francisco Bay Area and loves to play basketball and music in his free time. He also enjoys whipping up meals in the kitchen, which generally turn out pretty tasty (but not always!).

Additionally, Jason works with multiple non-profit organizations, including serving as a member of the granting committee for the non-profit organization, Jewish Helping Hands, which works with needy and vulnerable populations both in the United States and abroad and serving on the board and investment committee of Menorah Park, which directly provides subsidized housing and support to lower-income seniors in San Francisco and provides grants to Bay Area organizations aiming to the same.

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Ryan T. Nelson

Director in Investment Advisory, Partner

Ryan joined Aspiriant in 2012 and became a partner in 2019. He is currently a Director within the Investment Advisory group at Aspiriant and brings over 17 years of experience advising private clients on investment strategy. He serves approximately 35 clients from California to Texas in Aspiriant’s Exclusive Family Office group.

Ryan started his career in San Francisco as a registered representative of AXA Advisors where he advised individuals and families on asset allocation, manager selection and investment strategy. In 2009, Ryan joined Wells Fargo Advisors in Silicon Valley and partnered with two senior vice presidents in managing discretionary client assets across equities, fixed income and real estate. Two years later, Ryan joined First Allied Securities, an independent broker-dealer and RIA, where he partnered with an independent advisor in building out the firm’s investment advisory practice.

Ryan earned his B.A. in Economics from the University of California at Santa Cruz and has the CFA^® designation. He was named as a Forbes Next-Gen Wealth Advisor for multiple years and was named as a 2024 Forbes Best in State Wealth Advisor. Ryan resides in Austin, TX with his wife and daughter.

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