Here’s an estate planning scenario to think about: Maya joined a Series A AI startup as COO at 29. She negotiated her equity package carefully, hired a good accountant, and maxed out her 401(k). But she did not talk to an estate planning attorney.

Three years later, her company announced a term sheet for acquisition. The equity she’d been granted at a 409A valuation of $0.25 per share was now worth nearly $20. Her financial advisor delivered the good news alongside a quieter observation: several planning structures that could have meaningfully reduced her tax exposure had needed to be in place before the valuation climbed.

This story plays out frequently across the startup ecosystem among younger CFOs, COOs, early employees, and founders who are accumulating real wealth, often for the first time.

Here, we provide a plain-language walkthrough of four concepts every equity-holding executive should understand before a liquidity event, not after.

Your 409A Valuation Is an Estate Planning Clock

Many startup employees first encounter the 409A as a finance and HR formality: the independent valuation that sets the fair market value of common stock and determines the strike price for options. In estate planning, it is a timestamp on your planning window.

Several of the most effective estate planning structures work by transferring assets or the right to future appreciation of those assets at today’s fair market value. The lower that value, the more wealth can be moved at minimal gift or estate tax cost. When your company’s 409A sits at $0.25, transferring shares into a trust or other structure captures the upside of a future $20 exit with very little taxable value changing hands (though complexity can grow with liquidity discounts, minority discounts, and other valuation adjustments that can materially affect outcomes). Once the 409A reflects a late-stage valuation, that same move becomes far more expensive.

Essentially, every funding round that drives up your company’s valuation narrows the planning window. Executives who act early have access to a materially different set of options than those who wait until the company is pre-IPO, and the 409A reflects it.

The Trust Structures Worth Knowing Before Your Company Goes Public or Exits

Revocable Living Trust

A revocable living trust does not reduce taxes, but it helps ensure your estate is administered according to your intentions without court involvement. Without one, assets not otherwise structured to pass outside probate may need to go through a public, often slow, and potentially costly legal process in which a court oversees the distribution of your estate.

With a revocable trust, you transfer your assets into the trust during your lifetime, retain full control over them, and can amend or revoke the trust at any time. At death, the assets pass directly to your named beneficiaries according to the trust’s terms, often without a judge, generally private, and typically without the delays that probate introduces.

Irrevocable Trusts

An irrevocable trust is a sophisticated instrument that, when structured properly, allows appreciation to occur outside your taxable estate. An intentionally defective grantor trust (IDGT) lets you sell assets to the trust in exchange for a promissory note, moving future appreciation out of your estate while you continue paying income tax on trust earnings, effectively transferring additional value without using gift exemption. For the IRS to treat the transaction as a legitimate sale rather than a transfer with a retained interest, the trust must first be seeded with an initial gift, typically at least 10% of the value of the assets you intend to sell into it.

Grantor-Retained Annuity Trust

Grantor-retained annuity trusts (GRAT) are particularly relevant for equity holders expecting significant appreciation. You transfer assets into the GRAT, receive an annuity stream back over a fixed term, and at the end of that term, any appreciation above the IRS’s assumed interest rate passes to beneficiaries with little or no additional gift tax. In a low-valuation, high-upside scenario, which describes pre-liquidity startup equity, GRATs can be effective.

Three Tools for Founders Who Are Serious About Tax Efficiency

Beyond trusts, three categories of planning tools are routinely deployed by founders that can be leveraged for individuals who are estate planning.

Qualified Small Business Stock (QSBS)

In general, the QSBS rules permit individual shareholders of a U.S. corporation conducting a qualifying business to exclude a substantial portion of the gain realized on the sale of their stock from federal income tax.

For founders, one of the first major decisions is whether to structure the business as a corporation or as a limited liability company (LLC). Corporations are often the default choice because they are generally more attractive to venture capital investors and may qualify for favorable tax treatment under the QSBS rules, among other advantages. As a result, many founders incorporate from the outset. In doing so, however, they may give up certain potentially meaningful tax benefits available through an LLC or another flow-through entity. The recently expanded QSBS benefits under the One Big Beautiful Bill Act illustrate how important these structuring choices can be.

Forming a new venture as a corporation from the outset is often seen as the simplest and most cost-effective approach for founders expecting to raise venture capital. That said, an LLC may be worth considering in the early stages. Beginning as an LLC and converting to a corporation later can, in some cases, create meaningful tax benefits under the QSBS rules. But this strategy requires careful planning, appropriate timing, and an understanding of the related risks. Founders should work closely with qualified tax advisors to evaluate the structure and optimize potential tax savings.

Private Placement Life Insurance

Private placement life insurance (PPLI) is a life insurance wrapper around an investment portfolio. Inside the wrapper, gains grow tax-deferred and can ultimately be accessed tax-efficiently. For an executive with a concentrated equity position approaching liquidity, PPLI can provide a tax-efficient environment to reinvest and diversify proceeds after an exit, allowing future gains to compound without current taxation. It requires accredited investor status and meaningful premium commitments, so it is not the right fit for every situation.

Charitable Vehicles

A donor advised fund (DAF) allows you to make a charitable contribution, take the tax deduction immediately, and distribute funds to specific charities over time. In the year of a liquidity event, when income spikes sharply, front-loading charitable giving through a DAF can meaningfully reduce your tax bill while preserving substantial flexibility over where the money ultimately goes.

A charitable remainder trust (CRT) takes this further. You contribute appreciated assets into the trust, receive an income stream over a defined period, and the remainder passes to charity. Because the trust is tax-exempt, it can sell appreciated assets without immediate tax at the trust level, but the gains are effectively recognized over time as distributions are made to you under IRS ordering rules.

Planning for the Future

If you are a CFO, COO, or early employee at a company with a realistic exit in the next three to five years, the question is whether you engage with it before or after the moment of maximum leverage passes.

The executives who emerge from a liquidity event with their wealth efficiently structured are not luckier than their peers. They started earlier. They understood that estate planning is about the architecture you build while appreciation is still in front of you.