Tier 2 — Centi-millionaires

Profile

For this memo, centi-millionaires are households with roughly $100 million to under $1 billion of net worth, including families whose balance sheets may cross that range through a business exit, fund carry, inherited wealth, or public-market appreciation. They are generally below Proposition 40’s stated threshold, but they face the greatest threshold-mobility and complexity risk: a single liquidity event or valuation change can materially alter their profile.

What to do now

1.- Create a threshold-monitoring model. Measure covered and excluded asset categories separately, identify assets held through trusts and entities, and model plausible upside values around an expected transaction. Use ranges rather than a single point estimate for illiquid assets. The objective is preparedness, not artificial balance-sheet management.

2.- Commission baseline valuations for high-growth or hard-to-value assets. Early work is particularly important for founder equity, private-company interests, venture funds, management-company interests, carried interests, intellectual property, art, and collectibles. Maintain valuation support before a contested date or liquidity event arises.

3.- Complete exit planning before the exit is imminent. For families approaching a sale or IPO, align transaction structure, personal liquidity, charitable strategy, family governance, and estate planning before a letter of intent, signed deal, or market launch limits flexibility. Confirm that any pre-transaction planning is implemented sufficiently early and supported by real business and family objectives.

4.- Stress-test entity and trust distribution mechanics. Review operating agreements, partnership agreements, trust instruments, shareholder agreements, lender restrictions, and fiduciary standards to determine whether the family can obtain cash, borrow, distribute, redeem, or sell interests when needed. Avoid treating a valuable but illiquid entity interest as a ready source of tax liquidity.

5.- Formalize multigenerational governance. Establish family-council governance, investment oversight, family employment and compensation policies, distribution standards, and dispute-resolution process. As wealth and asset complexity increase, governance failures can be more costly than tax inefficiency.

6.- Evaluate, but do not stage, domicile options. A client with a genuine reason to establish life elsewhere can evaluate the full legal, personal, and business implications. The plan should address both California income-tax residency and the separate facts relevant to Proposition 40’s stated January 1, 2026 anchor. Do not backfill facts or create artificial residency indicia.

Advisor deliverables

  • Covered-asset / excluded-asset map with valuation ranges.
  • Exit-readiness memorandum for every material liquidity event anticipated in the next 36 months.
  • Entity-and-trust liquidity map, including approval and covenant constraints.
  • Governance roadmap with decision rights, family communication, and fiduciary escalation procedures.

Planning posture if Proposition 40 passes or fails

If it passes, centi-millionaires should retain their threshold file, monitor how the state administers valuation and trust ownership issues, and avoid making decisions based on untested assumptions. If it fails, the exit-readiness, valuation, liquidity, and governance work remains central to managing a rapidly scaling family balance sheet and possible future tax proposals.