Podcast Summary: The Path to Exit – Founder Tax & Estate Planning with Goldman Sachs

Podcast: The Path to Exit
Host: Mike Lyon (Vista Point Advisors)
Episode: 15
Guest: Sarah Latono (Goldman Sachs, Private Wealth Advisor)
Release Date: March 12, 2024

Episode Overview

This episode focuses on tax and estate planning for technology founders approaching a major liquidity event, such as selling their software or internet business. Host Mike Lyon welcomes Sarah Latono, a seasoned private wealth advisor from Goldman Sachs, to explore the critical steps founders should take to maximize their post-sale personal proceeds, avoid common pitfalls, and plan holistically for both income and estate tax liabilities. Key topics include optimal planning timelines, Qualified Small Business Stock (QSBS), essential team assembly, efficient charitable giving, and navigating the transition post-transaction.

Key Discussion Points & Insights

1. Starting the Planning Process: Timing & Team

• Begin 18 months prior:
  Sarah urges founders to plan well in advance—ideally 18 months before a potential sale—to ensure all relevant tax structures and strategies can be implemented for maximum benefit.

  "Some tax efficient structures can take several months to set up and your window to realize a tax savings can close very quickly." — Sarah Latono [01:29]

• Assemble the right team:
  Involve your investment banker, CPA, financial advisor, and estate attorney early. Coordinated teamwork is crucial to identify and fix problems ahead of time.

2. Critical Early Tax Considerations

• Coordinate early planning around:
  • Reviewing business structure for optimal taxation
  • Realizing capital losses to offset capital gains
  • Planning charitable giving efficiently (i.e. donor-advised funds, gifting appreciated stock)
  • Considering relocation to lower-income tax states (when feasible)
• Note: All advice should be tailored by your professional advisors.

  "We don't provide tax advice... It's critical any listeners obtain investment and tax related advice based on their particular circumstances." — Sarah Latono [02:44]

3. Qualified Small Business Stock (QSBS): Major Tax Savings

• What is QSBS?
  QSBS allows for partial or total exclusion of capital gains upon sale of eligible C corporation stock, up to $10 million or 10x the basis, if specific criteria are met.

  "If you are eligible for QSBS treatment... you will also want to make sure you're being mindful of that five year hold to ensure it's being met." — Sarah Latono [03:34]

• QSBS eligibility criteria:

  • Acquire original issue stock of a U.S. C-Corp with < $50M gross assets
  • Company must be an active trade/business (most tech cos. qualify)
  • Stock must be held for at least five years

• Rollovers: Proceeds may be rolled over into new QSB stock within 60 days after sale.

• Biggest pitfall: Founders often think they're eligible but are not.

  "...It's a very nuanced piece of the tax code. Again, speak to your CPA to confirm you're set and keep a second eye on that five year holding period..." — Sarah Latono [06:07]

• Double-check status: Both Mike and Sarah urge a second CPA opinion to ensure QSBS compliance.

  "My advice on tax is usually good tax people really pay for themselves pretty significantly..." — Mike Lyon [06:37]

4. Estate Planning Tactics

• Estate tax exposure: 40% tax rate can hit hard if unplanned.
  • Gift business equity to heirs or spouse via dynasty trusts before a sale to shift future appreciation out of your estate.
  • Use SLATs (Spousal Lifetime Access Trusts) or GRATs (Grantor Retained Annuity Trusts) for flexibility and to "freeze" estate value pre-transaction.
• Importance of early action:
  Last-minute fixes are possible but stressful and risky. Several anecdotes shared highlight founders benefitting from early trust planning and others who nearly missed opportunities by waiting until LOI (Letter of Intent) stage.

  "We talk about these structures with almost every founder... it would have been immensely less stressful if he had begun the planning months in advance." — Sarah Latono [08:22, 09:48]

5. Pre-Transaction Execution (6-9 months before close)

• Team integration:
  Ensure seamless communication between bankers, attorneys, CPAs, and wealth advisors.
  • Example: Simultaneously funding GRATs and donor-advised funds can trigger valuation issues if not properly coordinated.

  "This level of coordination cannot and it does not happen on fragmented teams." — Sarah Latono [10:27]

• Finalize trusts and recipient vehicles:
  All transfers and vehicles must be in place BEFORE due diligence ramp-ups.

6. Post-Transaction Realities & Advice

• Immediate aftermath:

  • Pause on major life changes; allow 6–12 months for family to adjust to liquidity.
  • Focus first on maximizing the yield on cash while developing a tax-efficient investment plan.

• Investment planning:
  Sarah and team guide the gradual build of a new portfolio, designed for long-term goals.

• Reframing wealth:
  Transitioning from business-generated income to portfolio-based income is a big psychological and practical shift—founders often underestimate this.

  "It is a big transition to go from having the business pay you to having your portfolio pay you." — Sarah Latono [13:42]

• Ongoing tax vigilance:
  Continue close CPA coordination to manage new tax liabilities, set aside tax-owed proceeds in low-risk assets (e.g., T-Bills, money market).

Notable Quotes & Memorable Moments

• On assembling the right team and timing:

  "It's easy to put planning in the back burner when you're focused on running the business and thinking about a sale. However, some tax efficient structures can take several months to set up and your window to realize a tax savings can close very quickly."
  — Sarah Latono [01:29]

• On founders overestimating QSBS eligibility:

  "We often do see founders who think they are in good shape. They believe they have QSBS, but they do not. In fact, it's a very nuanced piece of the tax code."
  — Sarah Latono [06:07]

• On the post-transaction experience:

  "It's an amazing accomplishment to build and sell a business. We are so excited for our clients who achieve this incredible milestone... I generally recommend clients hold off on big life decisions for at least six to twelve months after the transaction."
  — Sarah Latono [11:58]

• On the value of good tax advice:

  "Good tax people really pay for themselves pretty significantly in a way that some other service providers don't."
  — Mike Lyon [06:37]

Timestamps of Key Segments

• [00:55] Introduction to Sarah Latono and her advisory practice
• [01:29] The ideal timeline and assembling your advisory team
• [02:44] Key tax planning considerations before a transaction
• [04:51] Detailed QSBS explanation and requirements
• [06:07] Ensuring QSBS eligibility & importance of expert CPA advice
• [07:30] Overview of estate tax strategies: trusts, SLATs, GRATs
• [09:48] Real-world stories of late and early planning outcomes
• [10:27] Final pre-transaction steps: team coordination and planning
• [11:58] After the transaction: advice for new wealth management
• [13:42] Tax realities and portfolio transition after closing

Final Thoughts & Recommendations

• Plan Early: Begin tax and estate planning at least 18 months before even considering a sale.
• Build Your Team: Involve specialists (bankers, attorneys, CPAs, wealth advisors) early and keep them coordinated.
• Get Second Opinions: Especially regarding QSBS and other nuanced tax strategies.
• Prioritize After-Tax Outcomes: Don’t fixate solely on pre-tax valuations—after-tax proceeds are what matter most.
• Take Time Post-Exit: Let the dust settle before making big spending or life changes, and build your investment plan gradually.

Contact:
Sarah Latono welcomes follow-up from listeners via Vista Point Advisors or the Goldman Sachs San Francisco office.