A guide to the terms behind business transitions, concentrated investments, real estate decisions and multigenerational wealth.
The right strategy depends on what you own, the timing of a decision and how it affects the rest of your financial life. Use this glossary to get oriented, then bring the questions that matter to a coordinated planning conversation.
A private fund that allows eligible investors to contribute appreciated stock in exchange for an interest in a diversified pool of assets. It may postpone the tax consequences of selling a concentrated position, but typically involves fees, holding requirements and limited liquidity.
An options strategy that places a potential floor and ceiling on the value of a stock position. It may help an investor manage risk while planning when and how to reduce a large holding.
An arrangement that provides cash upfront in exchange for delivering a variable number of shares later. It may provide liquidity from a concentrated position, but its terms and tax treatment require careful review.
A written plan that schedules future stock trades by a company insider under specified conditions. Executives may use one to create a disciplined approach to selling company shares while observing securities rules.
A loan secured by an investment portfolio. It may provide cash without selling holdings, but a decline in portfolio value can lead to a demand for additional collateral or repayment.
Owning individual securities selected to track an index instead of buying an index fund. This can give an investor more control over tax-loss harvesting and restrictions on particular holdings.
Selling an investment at a loss so the realized loss may offset capital gains, subject to tax rules. Coordinating those losses with a future business, real estate or stock sale can be especially valuable.
Stock that meets the requirements of Internal Revenue Code Section 1202. An eligible shareholder may be able to exclude some or all of the gain on a sale, depending on the applicable company, shareholder and holding-period rules.
Read WAC insight: Preparing financially for a business exit →
Passing a business to children or other family members through a sale, gift, inheritance or combination of methods. The plan should address future ownership, management and the departing owner’s financial needs.
A transaction in which the existing management team purchases some or all of the business. Financing, purchase price and the owner’s transition out of the company are central considerations.
A qualified retirement plan that invests primarily in the sponsoring company’s stock. Selling shares to an ESOP may allow an owner to transition ownership to employees over time, subject to valuation, financing and ongoing plan requirements.
A sale to a company that sees business value in the combination, such as a competitor, supplier or customer. The buyer may consider potential operating benefits alongside the company’s standalone performance.
A sale to an investor, such as a private equity firm, seeking a financial return from the business. In some transactions, the owner retains a stake and participates in the company’s future results.
A restructuring of a company’s ownership, debt or equity. It may allow an owner to receive some proceeds now while retaining an interest in the business; it does not necessarily require an outside buyer.
A sale in which the seller receives at least one payment after the year of sale. It may spread recognition of certain gains across years, although not every component of a business sale qualifies for installment treatment.
A planned wind-down in which a business sells its assets, collects receivables, pays its obligations and distributes what remains to its owners. It may be considered when a sale of the operating business or succession is not practical.
An election to recognize income when certain restricted property is transferred rather than when it vests. Founders and executives sometimes consider it when receiving equity with a low current value; the filing deadline is strict.
An investment vehicle that invests in qualifying opportunity zone property. Eligible gains invested under the applicable rules may receive tax deferral, and long-term ownership may provide other federal tax benefits. Rules differ for investments made before and after 2026.
A structure that allows investors to hold a fractional beneficial interest in real estate. An interest in a properly structured DST may qualify as replacement property in a Section 1031 exchange.
A transaction that may defer gain when qualifying investment or business real estate is exchanged for other qualifying real estate. Identification, closing and intermediary requirements make planning before the sale essential.
A federal tax classification for someone who spends more than half of their working time and more than 750 hours during the year in qualifying real property businesses. Meeting those tests alone does not make every rental loss deductible against other income; the owner must also meet the applicable participation rules for the rental activity.
An informal name for a potential exception to the usual passive-loss treatment of rentals. When the average guest stay is seven days or less and the owner materially participates, a short-term rental loss may be treated as nonpassive. Other tax limitations can still restrict the deduction.
A rule that may let an owner who makes meaningful rental management decisions deduct up to $25,000 of rental real estate losses against other income, even without meeting the stricter material-participation standard. The allowance generally phases out as modified adjusted gross income rises from $100,000 to $150,000.
An irrevocable trust that pays its creator an annuity for a set term. If the assets grow sufficiently, value remaining at the end of that term may pass to beneficiaries with reduced use of gift-tax exemption.
A trust designed so its creator generally pays income tax on trust income while the assets may receive different treatment for estate-tax purposes. It can be used in carefully structured transfers of appreciating assets.
An irrevocable trust established for the benefit of a spouse and potentially other beneficiaries. It may move future appreciation outside the creator’s estate while allowing indirect family access through the beneficiary spouse.
A trust that owns a life insurance policy and directs how proceeds are used after death. When properly designed and administered, it may provide estate liquidity without including the proceeds in the insured person’s taxable estate.
A partnership structure families may use to hold and manage assets, set ownership rules and transfer interests over time. Its legal, tax and valuation results depend on how it is established and operated.
An irrevocable trust that transfers a home or vacation property to beneficiaries while allowing the owner to live there for a specified term. It may reduce the gift-tax value of the transfer, but the intended estate-tax benefit can be lost if the owner dies before the term ends.
A long-term trust designed to hold and distribute assets for multiple generations under rules set by its creator. Depending on state law and how the trust is funded, it may help preserve family assets and limit repeated estate taxation as wealth passes to later generations.
Moving money from a traditional pre-tax retirement account to a Roth account. The converted amount is generally taxable in the year of conversion, while qualified future Roth withdrawals may be tax-free.
A strategy in which an eligible investor makes a nondeductible traditional IRA contribution and then converts those funds to a Roth IRA. Existing pre-tax IRA balances can affect the tax result.
A minimum amount that certain retirement-account owners must generally withdraw each year after reaching the applicable starting age under current tax law.
A direct transfer from an eligible IRA to a qualifying charity. When requirements are met, the distribution may satisfy part or all of an RMD without being included in taxable income.
A tax treatment that may apply to employer stock distributed from a qualified retirement plan. When specific requirements are met, appreciation in the shares may later receive capital-gain rather than ordinary-income treatment.
The income-related monthly adjustment amount is an additional Medicare Part B and Part D charge that can apply when modified adjusted gross income exceeds specified thresholds.
Placing different types of investments in taxable, tax-deferred and tax-free accounts with the goal of improving overall tax efficiency.
The risk that poor investment returns early in retirement, when withdrawals are also occurring, can have a disproportionately large effect on how long a portfolio lasts.
Read WAC insight: Turning a retirement portfolio into a paycheck →
Evaluating when to begin Social Security benefits in light of factors such as age, longevity, marital status, other income and retirement needs.
A trust that can generally be changed or revoked by its creator during life. It can help organize asset management and may allow properly titled assets to pass outside probate.
A trust whose terms generally cannot be freely changed after creation. Depending on its design, it may be used for estate, tax, asset-protection or legacy-planning objectives.
An irrevocable trust that can provide payments to noncharitable beneficiaries for a period of time, with remaining assets ultimately passing to charity.
A charitable giving account sponsored by a public charity. A donor can make an irrevocable contribution, potentially receive a current charitable deduction, and recommend grants to eligible charities over time.
A federal estate-tax provision that may allow a surviving spouse to use a deceased spouse's unused estate-tax exemption if a timely and proper estate-tax return is filed.
A basis adjustment that may apply to certain inherited assets, generally resetting tax basis to fair market value as of the owner's date of death, subject to applicable tax rules.
A federal transfer tax that can apply to certain gifts or transfers to beneficiaries who are two or more generations below the person making the transfer.
A legal document authorizing another person to act on someone's behalf for specified financial or legal matters.
A legal document expressing healthcare preferences and, depending on the document and state law, naming someone to make medical decisions when the individual cannot do so.
A beneficiary designation that can allow certain assets to pass directly to a named beneficiary at death without going through probate.
An instruction naming the person, trust, charity or other recipient intended to receive an account or policy benefit at death.
An agreement governing how an ownership interest may be transferred when specified events occur, such as death, disability, retirement or departure of an owner.
Life or disability insurance purchased to help protect a business from the financial impact of losing an owner, executive or other person important to the company's operations.
An analysis used to estimate the economic value of a business or ownership interest. Valuations may be relevant to sales, succession planning, estate planning, equity compensation and buy-sell agreements.
The process of preparing for the future transfer of leadership, ownership or both, with attention to business continuity, family objectives, employees, taxes and liquidity.
Read WAC insight: Preparing financially for a business exit →
A federal tax election that may allow a recipient of restricted property to include its value in income when the property is transferred rather than when it later vests. Strict filing deadlines apply.
An independent valuation commonly used by private companies to estimate the fair market value of common stock for purposes including setting stock-option exercise prices.
A person or firm required to act in another party's best interest within the scope of the fiduciary relationship.
The market value of assets that an investment adviser manages or supervises for clients, calculated according to the firm's applicable methodology.
A written framework documenting investment objectives, time horizon, risk considerations, liquidity needs, restrictions and other guidelines used to help manage a portfolio.
An investor's willingness to accept fluctuations and potential losses in pursuit of investment returns.
An investor's financial ability to withstand investment losses without materially impairing important goals or required spending.
The length of time before invested assets are expected to be needed for a particular goal or spending need.
Expected requirements for cash or assets that can be converted to cash without significant delay or loss of value.
The value of a person's or household's assets minus liabilities.
Reviewing income, spending, savings, taxes and other cash movements to understand how current resources support short- and long-term goals.
Additional personal liability coverage designed to sit above specified underlying insurance policies and provide protection up to the policy's limits, subject to its terms and exclusions.
An estate plan focuses on legal arrangements for incapacity, ownership and transfer of assets, while a financial plan coordinates broader decisions such as cash flow, investments, retirement, taxes, insurance and legacy goals. The two often work best when coordinated.
Risk tolerance describes how comfortable an investor is with investment risk; risk capacity describes how much financial risk the investor can afford to take. A sound investment approach considers both.
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