An ultra-wealthy client walks into your office. A founder or an executive whose net worth is heavily concentrated in a single stock position. They need liquidity to make a major purchase or diversify.
Odds are they want to sell the stock. As their advisor, your job is to keep them from doing just that.
When a client liquidates an appreciated asset, they trigger a taxable event. The capital gains hit. The principal shrinks. The compounding stops. It's easy to view this as a math problem to mitigate on the back end. But the most valuable advisors view it as a structural decision to shape on the front end.
The difference between a high earner who bleeds a third of their gains to taxes and one who keeps compounding isn't luck. It isn't a secret loophole. It's structure. And, ultimately, it's the advisor who knows how to apply the tools provided in the Tax Code.
Here is how three of those tools can make a generational difference for your ultra-high-net-worth clients.
1. Borrow, don't sell
The instinct to sell for cash is the most expensive reflex your clients have.
When that founder needs $20 million to diversify, fund a new venture or simply finance their lifestyle, the standard playbook says they must recognize income. But income is taxable. Debt is not.
If they hold a diversified $150 million public stock portfolio, they can generally borrow up to 70% of its value. If it is a concentrated single-stock position or private equity, the advance rate will be lower, but the mechanism remains identical. They take out a portfolio margin loan. They get the $20 million in cash. They don't sell a single share.
The math is simple. The asset keeps compounding. The borrowed funds aren't taxable income. When it is time to service the debt, they can let the portfolio's dividends cover it or sell only what is strictly necessary. The principal remains intact.
How does the debt ultimately resolve? The endgame takes one of three shapes: The portfolio's growth outpaces the interest expense over a decade, the client eventually liquidates a portion at long-term capital gains rates after years of uninterrupted compounding, or they hold the asset for life and their heirs receive a step-up in basis that wipes out the unrealized gains entirely.
You can apply this structure to public stock, private stock and whole life insurance policies. The principle to convey to your clients is that you do not need to generate taxable income to generate cash.
2. Real estate depreciation
Let's say your client is now sitting with $20 million in cash, borrowed or otherwise, ready to invest. What do they do with it?
If they leave it in cash, inflation eats it. If they buy more stock, they generate taxable dividends. The ideal move would be to deploy it into an asset that appreciates and produces cash flow but generates paper losses.
In other words, real estate.
The One Big Beautiful Bill Act restored 100% bonus depreciation permanently for property acquired after Jan. 19, 2025. That change has once again cemented real estate as the holy grail of tax-efficient investments — if it's structured properly.
You cannot bonus depreciate a whole building. An apartment complex is depreciated over 27.5 years. If your client buys a $20 million multifamily property, straight-line depreciation will not move the needle enough to offset a massive active income year.
But an apartment building is not one asset. It's hundreds of components. It's flooring, cabinets, water heaters, HVAC units, site improvements and wiring. A cost segregation study reclassifies these components into five-year and 15-year MACRS property.
Typically, 20% to 40% of a multifamily property's depreciable basis (excluding land value) will land on these shorter schedules. Because of the OBBBA restoration, every single dollar of that reclassified property now qualifies for a 100% first-year write-off.
That means on a $20 million acquisition with a standard land allocation, you can often hand your client a $3.2 million to $6.4 million paper loss in year one. No cash left their pocket for that loss. But it offsets real income.
You must be candid with them about the limits. This is tax deferral, not tax elimination. When they eventually sell the property, they will face depreciation recapture. The Section 1245 property (the short-lived assets you segregated) is recaptured at ordinary income rates up to 37%, while the unrecaptured Section 1250 gain on the building structure is capped at 25%. But as long as they defer those taxes by holding or using 1031 exchanges, they keep their capital working for them instead of the government.
You also need to manage the passive activity rules. By default, rental real estate losses are passive. They can only offset passive income. If your client wants to use that first-year depreciation hit to offset their active W-2 income or business revenue, you have to help them — or their spouse — qualify for real estate professional status.
3. Oil, gas and depletion
What if your client doesn't want to manage real estate? Or what if they want to stack their defenses even deeper? The third structure involves the energy sector.
If your client takes a portion of their capital and drills an oil and gas well, their capital expenditure is split into two categories: tangible and intangible costs. Intangible drilling costs include labor, chemicals, mud, grease and anything without salvage value. These often make up 60% to 80% of the well's cost and can generally be deducted entirely in the first year.
That is a heavy upfront write-off. But the structural advantage continues after the well starts producing.
When a client owns mineral rights and receives royalty revenue, they automatically qualify for the percentage depletion allowance. That's a flat 15% deduction off the gross income designed to account for the declining reserves in the ground. If the well pays them $1 million in a year, they only pay taxes on $850,000.
But you don't stop there.
Remember the portfolio loan? You can borrow against mineral rights just like you borrow against a stock portfolio. If your client borrows against their producing minerals, they generate interest expense to offset the remaining taxable royalty income.
Naturally, this requires careful navigation of the investment interest expense limitations under Sec. 163(d) and strict tracing rules to ensure the interest legally offsets the intended income.
But when structured correctly, their reported income drops while their actual wealth accelerates. They use the borrowed, untaxed cash from the minerals to fund their next investment. And they start the cycle over.
Compounding is key
Wealth is created by founders. Wealth is preserved by structure.
That's where you provide your highest value. Not by processing their transactions after the fact. By helping your client to see their net worth as a vessel for future returns rather than a piggy bank to draw from. When every decision is structured to keep their money compounding for longer, you do more than manage their wealth. You manage their future.
