Tier 1 — High-Net-Worth Individuals (HNWIs)

Profile

For this memo, HNWIs are clients below the centi-millionaire range and well below Proposition 40’s stated $1 billion covered-assets threshold. They are unlikely to be direct taxpayers under the initiative as currently described. Their planning focus should be on resilience, optionality, and avoiding unnecessary complexity, rather than attempting to react to a measure that does not presently reach them.

What to do now

1.- Confirm that the household is not near a threshold through aggregation or future liquidity. Update projections for an expected business sale, IPO, carried-interest realization, concentrated-stock appreciation, inheritance, or trust distribution. The immediate legal exposure may be remote, but future growth can change the planning posture quickly.

2.- Prioritize federal transfer-tax readiness. Review wills, revocable trusts, irrevocable trusts, powers of appointment, beneficiary designations, life insurance, and entity succession plans. Identify whether current documents can efficiently accommodate future legislative changes without frequent amendments.

3.- Improve concentration and liquidity discipline. HNWIs often have a large percentage of wealth in an operating company, employer stock, real estate, or private funds. Establish a written liquidity reserve, a sale-plan or diversification protocol where appropriate, and a credit-line review. These measures are useful regardless of Proposition 40.

4.- Use ordinary-course charitable and family-transfer planning deliberately. Evaluate charitable giving, annual exclusion gifts, education and medical payments, donor-advised funds, and family entity governance against the client’s philanthropic and succession objectives. Do not accelerate a transfer merely because of election uncertainty unless the client’s non-tax objectives, cash needs, and risk tolerance independently support it.

5.- Maintain residency evidence without overreacting. Clients who genuinely live and work in California should maintain coherent records. Clients with established multi-state lives should obtain advice before altering facts or documentation; a paper-only move carries substantial audit and credibility risk.

Advisor deliverables

  • One-page household tax-and-liquidity dashboard.
  • Updated estate-plan and beneficiary-designation checklist.
  • Concentrated-asset and credit-capacity review.
  • Three-year forecast of known liquidity events and potential wealth inflection points.

Planning posture if Proposition 40 passes or fails

If it passes, HNWIs should monitor future expansion proposals and avoid assuming that current thresholds will remain fixed, while continuing conventional income, transfer, and investment planning. If it fails, the same balance-sheet, succession, valuation, and residency work remains useful because the political and fiscal pressures motivating the proposal are likely to remain relevant.