Exit Planning: The 18 Months Before a Liquidity Event

Eighteen months before a liquidity event is the last window where real planning moves can execute without the scrutiny of a pre-arranged transaction. Gifts to trusts have to clear the appearance of being tied to a known upcoming sale. State residency changes need documented history. QSBS stacking structures take months to set up cleanly. Charitable gifting of appreciated stock requires qualified appraisals and often requires donor-advised fund acceptance of private stock, which can take weeks. Inside of six months before a deal, most of these moves become difficult or impossible.

This creates a specific planning horizon. If the IPO is targeted for Q4 of next year and we are early in Q2 of this year, you have roughly 15-18 months of planning runway. Use it or lose it.

This guide walks through the planning sequence for an 18-month exit horizon, organized as a timeline: what to do at 18 months out, 12 months out, 6 months out, and 60 days out. Each milestone has different priorities and different execution windows.

Month 18: orient and inventory

The first task is knowing what you have. For a founder or senior executive entering exit planning, this often means pulling together documents that have been scattered across stock plan administrators, private markets, and personal holdings.

Inventory to assemble:

Every equity grant: type (ISO, NSO, RSU, restricted stock), grant date, strike price (if applicable), vesting schedule, expiration date.
Current 409A and recent preferred round prices.
Basis in each position (critical for capital gain calculations).
QSBS eligibility status for each tranche (C-corp timing, gross assets test, holding period).
Trust holdings and beneficiary structures.
Personal holdings outside equity comp (cash, public-market investments, real estate, business interests).
Outstanding debts and obligations.
Current state of residence and documented residency status.

Engage the team. At 18 months, you should have:

A tax attorney or CPA with equity-comp specialization.
A trust and estates attorney if your wealth is heading above the estate tax exemption.
A financial planner or multi-family office for coordination.
Potentially a securities attorney if the liquidity event involves SEC filings (IPO, tender).

This team works together for the duration. Get them coordinating now, with you, each other, and any existing outside advisors.

Month 18-15: state residency and entity structure

If a state residency change makes sense, it must happen now. Moving to Texas, Nevada, Florida, or Washington (for state income tax reasons, excluding WA capital gains) before a large sale requires documented nonresidency for audit defense. California specifically applies aggressive residency audits to high-value departures.

Requirements for a solid residency change:

Physical move with documented home purchase or lease.
Drivers’ license, vehicle registration, voter registration in new state.
Change of professional advisors (doctor, dentist, CPA, attorney).
Days-in-state tracking in the new state.
Shutdown of old-state connections (sell or rent out old home, change club memberships).

A move initiated 15 months before the sale has 12+ months of documented nonresidency by the time the sale closes, which is reasonably defensible. A move initiated 3 months before the sale will not survive a California audit.

Entity structure review. For founders with large stakes, consider whether existing LLCs, partnerships, or holding companies are optimally structured. Pre-transaction restructuring (merging LLCs, distributing assets, changing trust beneficiaries) is much cleaner with runway than in the pre-close period.

Month 15-12: gifting strategy and trust funding

Gifting appreciated stock to trusts before a liquidity event removes the future appreciation from the donor’s estate and potentially multiplies QSBS exclusions. The operational steps:

Design the trust structure (IDGT, SLAT, non-grantor trust for QSBS stacking) with the T&E attorney.
Draft and execute the trust documents.
Obtain qualified appraisal of the gifted stock (required for gifts of private stock above $5,000).
Execute the gift (stock certificate transfer, stock plan administrator notification, company approval if required).
File Form 709 gift tax return in the year of the gift.

Each of these takes time. A typical sequence from “I want to do this” to “gift is funded” is 60-120 days. Starting at 15 months out means completion by month 12-13, which leaves clear separation from the transaction.

Qualified appraisals must reflect FMV at the gift date. The appraisal cannot simply use the next-round preferred price; it must apply discounts for lack of control and lack of marketability (DLOM) on common stock. Typical combined discounts on pre-liquidity common are 20-40%.

QSBS stacking. For founders with >$10M of expected gain from qualifying stock, gifting portions to non-grantor trusts before the sale creates multiple $10M exclusion caps. Each trust is a separate taxpayer. A founder with four trusts and their own holding has five stacks, or $50M of potential exclusion. Execute this well before the sale to avoid step-transaction challenges.

Month 12: charitable planning

If charitable giving is part of the plan, the vehicles and recipient decisions should be locked in by month 12. A donor-advised fund setup and funding with private stock typically takes 4-8 weeks. Private foundation setup takes 6-12 weeks including IRS determination letter. CRT drafting takes 4-8 weeks plus funding time.

A common structure: donate 5-15% of appreciated equity to a DAF ~12 months before the sale. The DAF sells at IPO or in the tender, with zero capital gains tax owed inside the DAF. Donor takes immediate FMV deduction (limited to 30% of AGI per year, 5-year carryforward).

For donors with strong charitable intent ($5M+ of planned giving), a CRT funded pre-transaction spreads the gain recognition across the CRT term while generating an immediate large deduction. The deduction is the present value of the charitable remainder calculated under §664.

Both DAFs and CRTs must be funded with the stock before it is contractually sold. Once there is a binding contract to sell, the stock is considered “sold” for tax purposes regardless of who holds it at closing (assignment-of-income doctrine). Fund charitable vehicles well before signing.

Month 6: 10b5-1 plans and pre-IPO tenders

For a public-company scenario or a company that has filed confidentially, 10b5-1 plans are the operational tool for post-IPO selling. Plans adopted under the 2023 SEC rules require 90-day cooling-off for officers and directors, or 30-day for other insiders, plus a certification of good faith and no MNPI.

Start plan design at month 6. The plan specifies share counts, price thresholds, and schedule for automatic sales post-lock-up expiration (typically month 10-11 from IPO). Executing without a plan means waiting for open windows and trying to manually execute sales, which for concentrated positions is operationally difficult.

For private-company pre-transaction tenders, evaluate participation. Tenders typically allow 10-25% of vested shares to sell at a defined price. If the tender price is attractive relative to expected IPO or acquisition value, maximize participation. If the tender is at a steep discount to expected outcome, participate at a lower level or skip.

Month 3: cash flow and liquidity planning

Closer to the transaction, the focus shifts from structural planning to operational readiness.

Tax cash flow modeling. Project the tax liability under the transaction scenario. For an IPO, the tax cliff arrives when double-trigger RSUs settle. For an acquisition, the tax arrives at closing or in installment payments if the deal is structured as a rollover. For a tender, the tax arrives in the same quarter as the sale.

Line up liquidity for the tax bill. Options include: selling a portion immediately at transaction close, margin loans against vested public shares post-lock-up, pledged-asset loans against other portfolio holdings, or pre-arranged 10b5-1 sales triggering automatically after lock-up.

Estimated tax payments. If the transaction is in H1 of the year, Q2 or Q3 estimated payments may be required. If in H2, a December estimated payment plus the January due date covers most scenarios. Coordinate with your CPA to hit the safe harbor under IRC §6654 and avoid underpayment penalties.

Month 1-Close: hold steady

In the final month before a transaction, the rule is to not change anything that affects tax position. No new trusts. No gifting. No residency moves. No major charitable contributions outside of plans already in flight.

The IRS and state tax authorities routinely look back at the months before a large transaction for evidence of pre-arranged structuring. Last-minute moves, even if technically legitimate, are audit magnets.

What to do in the final month: confirm all executed structures are operational. Confirm all wires are lined up with the correct bank accounts. Confirm the stock transfer agents have accurate records. Re-read the CPA’s estimated tax projection and make any final Q4 estimated payment needed.

Reserve headspace. The transaction itself is a physically and emotionally demanding event. Plan to take at least two weeks off work around closing to handle personal items.

Frequently asked

My company announced the acquisition six weeks ago. Is it too late to plan? For some moves, yes. Trust gifting is difficult because of step-transaction doctrine. QSBS stacking is often foreclosed. State residency changes cannot establish sufficient history. For other moves (charitable giving of pre-announcement shares, tax cash flow planning, 10b5-1 planning for post-close selling if the deal includes stock), six weeks can still be useful.

Does it matter if the company goes public versus is acquired? Yes. IPOs create a liquid but locked public position (6-month lockup typical). Cash acquisitions produce immediate liquidity. Stock-for-stock acquisitions roll your shares into the acquirer’s stock (potentially preserving QSBS and capital-gain characteristics). Each requires different planning.

Can I do trust gifting after the transaction closes? You can always gift, but the embedded appreciation that exit planning captures is already recognized. Post-close gifting removes future appreciation from the estate but does not capture the pre-transaction value shift.

What if the transaction doesn’t happen? Many of the structures (trusts, residency changes, charitable vehicles) are still useful post-event. A failed IPO or a broken acquisition is disappointing but does not invalidate the planning work. Keep the structures intact for the next attempt.

How do I know if my expected exit is “real” enough to plan around? An S-1 filing is highly reliable. Board-approved acquisition term sheet is reliable. Hopeful expectation of IPO within two years is not reliable. Plan aggressively for high-confidence events; plan conservatively for lower-confidence ones.

Next step

If a liquidity event is on your horizon in the next 18 months, start the planning sequence now. The exit planning timeline calculator maps each planning move against your expected event date. For transactions with expected proceeds above $10M, engaging the full advisory team (tax, trust, planning, securities) is not optional; the cost of good coordination is measured in hours of professional time, and the value is measured in percentage points of the deal.