Tier 3 — Billionaire Clients

Profile

Billionaire clients are the group most directly implicated by Proposition 40 as currently described. The measure’s official materials state that the proposal applies to certain individuals and trusts with covered assets over $1 billion, generally excluding real property, pensions, and retirement accounts; the LAO describes the proposal as applying to billionaires who were California residents on January 1, 2026. California Attorney General, Official Title and Summary; California Legislative Analyst’s Office, Proposition 40.

The planning priority is therefore not last-minute wealth reduction. It is to establish a privileged, evidence-based exposure assessment, an executable liquidity plan, and a governance process that can respond promptly to final election and implementation developments.

What to do now

1.- Undertake a Proposition 40 exposure assessment. Under privilege and with coordinated California tax counsel, prepare a preliminary covered-assets analysis for each potentially covered individual and trust. Address legal ownership, beneficial ownership, entity look-through questions, trust interests, valuation methodology, excluded assets, debt treatment, and California-residency facts. Identify all assumptions that depend on final measure text, regulations, administrative guidance, or litigation.

2.- Prepare a January 1, 2026 evidence file. Preserve contemporaneous records relevant to California residence on that date, ownership, asset values, liabilities, encumbrances, legal restrictions, entity capitalization, and trust administration. Create a clear chain of custody for source documents and a calendar of subsequent events that could affect valuation analysis.

3.- Build a multi-source liquidity plan. Estimate liability using appropriate valuation ranges and model cash needs under immediate payment and any permitted installment alternative. Compare cost, timing, collateral, tax consequences, market impact, and governance requirements for cash reserves, portfolio monetization, dividends, entity distributions, redemptions, borrowing, and sales of noncore assets. The initiative’s official materials indicate a five-year payment alternative that carries an additional cost. California Legislative Analyst’s Office, Proposition 40.

4.- Engage independent valuation expertise early. Use qualified professionals with asset-specific expertise and establish a review committee for major appraisals. For closely held businesses and highly illiquid assets, retain the evidence underlying valuation conclusions—including financial statements, forecasts, comparable transactions, discount analyses, restrictions, and subsequent-event assessment.

5.- Revisit capital structure and governance. Review borrowing authority, debt covenants, distribution restrictions, minority-holder rights, trust fiduciary duties, shareholder agreements, insurance coverage, and board processes. Determine whether an entity-level liquidity action could compromise operating needs, capital commitments, creditor rights, or fiduciary duties.

6.- Coordinate family, charitable, and business continuity planning. Confirm that estate plans, philanthropy, succession documents, corporate governance, and family communications can function during a period of substantial tax uncertainty. Charitable and family transfers should be analyzed for their independent objectives, legal effectiveness, valuation consequences, and timing—not treated as automatic avoidance devices.

7.- Establish a communications and confidentiality protocol. Identify the small internal group authorized to receive exposure estimates; preserve attorney-client privilege where available; control valuation drafts and investor communications; and create a response plan for banks, co-investors, portfolio-company management, trustees, and family members.

Advisor deliverables

Privileged exposure memorandum identifying confirmed facts, open questions, and final-text dependencies.
January 1, 2026 residency, ownership, and valuation evidence index.
Tax-liquidity financing plan with base, downside, and stress cases.
Asset-by-asset valuation workplan and responsibility matrix.
Governance and consents checklist for all potential cash-generation actions.
Communications protocol and 30/60/90-day post-election calendar.

Planning posture if Proposition 40 passes or fails

If it passes, promptly reconcile the final official text with the exposure memorandum, refresh values as required, validate any payment election, finalize liquidity sources, and monitor implementing guidance and litigation before adopting aggressive positions. The LAO notes both the anticipated 2027 payment timing and potential fiscal effects that may be influenced by migration and other behavioral responses; those uncertainties reinforce the need for disciplined documentation rather than improvised action. California Legislative Analyst’s Office, Proposition 40.

If it fails, retain the completed exposure assessment and liquidity architecture as a broader tax-risk-management asset. Reassess strategic residence, concentrated-asset, transfer-tax, charitable, and business-continuity planning under the client’s ordinary long-term objectives. The work should not be discarded merely because the immediate liability did not materialize.

Election-Resilient Action Calendar

Before the election

Complete asset inventory, valuation triage, residency evidence collection, and liquidity stress testing.
Obtain tax, valuation, trust, corporate, and lending counsel input on material assumptions.
Prepare—without executing unnecessary transactions—a board and family-office decision package for each major contingency.
Update estate-planning and business-succession documents where changes are independently warranted.
Establish a single source of truth for cap tables, trust documents, entity agreements, appraisal materials, and tax projections.

First 30 days after the election

Confirm the official election outcome and final text; recognize that ballot-measure conflicts, court proceedings, and implementation questions may remain. The LAO specifically notes possible interaction with Propositions 41 and 42 under the state’s conflicting-measures rule. California Legislative Analyst’s Office, Proposition 40.
Convene the family-office tax steering group and compare the final framework with the pre-election scenario matrix.
For potentially covered clients, update the exposure memorandum and initiate the final valuation and payment-liquidity workstream.
For all other clients, reassess whether future wealth growth, exits, or legislative risk justify moving to the next planning tier.

30 to 180 days after the election

Track administrative guidance, valuation procedures, payment instructions, and constitutional or statutory challenges.
Execute only those transactions approved through the family’s documented governance process and supported by legal, business, and fiduciary objectives.
Refresh forecasts and communicate a concise, fact-based update to family stakeholders.

Questions Family Office Advisors Should Ask at the Next Client Meeting

1.- What assets, owners, and trusts are not yet reflected accurately in the consolidated balance sheet?

2.- Which material assets lack current, supportable valuation evidence?

3.- What cash could be made available within 30, 90, and 365 days without impairing the operating business or breaching a governing document or covenant?

4.- Which family members, trustees, directors, and minority holders must approve a liquidity action?

5.- Are residency and domicile facts consistent with the client’s actual life and documented contemporaneously?

6.- Which expected sale, IPO, recapitalization, inheritance, or distribution could move the family into a different planning tier?

7.- Which estate, charitable, and governance actions are justified independently of election-driven tax concerns?

8.- Who owns the post-election decision process, and what information must be available on day one?

Conclusion

Proposition 40 should be approached as both a possible near-term California tax event for billionaire clients and a broader signal that large-family balance sheets need more rigorous readiness. The appropriate response across tiers is not speculative restructuring. It is disciplined preparation: accurate facts, defensible values, available liquidity, sound governance, integrated income- and transfer-tax planning, and a decision process that remains useful whether the measure passes or fails.

This memorandum is for general planning discussion and does not constitute legal, tax, investment, valuation, or fiduciary advice. It should be implemented only after review of the final ballot measure, applicable guidance, and the client’s specific facts by quali