What needs to be funded, and when?
Separate the cash you need now from the wealth intended for later. Borrowing can provide cash, but you still have a loan to repay.
CONCENTRATED WEALTH / A FAMILY DECISION
Managing concentrated stock
What does your family need these shares to fund? A sale can provide cash and reduce direct company exposure, while leaving a substantial holding and built-in gain to manage. The example shows the cash available and the stock and gain that remain.
Define the cash need and constraints ↓Go straight to the worksheet ↗
HYPOTHETICAL PORTFOLIO$12.5mInvestable assets—money invested that could be sold or moved
ONE COMPANY$7.5m60% of the portfolio
CASH NEEDS AND CONSTRAINTS
Cash needs and company risk
The shares may represent decades of work. They may also be expected to fund retirement, a child’s inheritance, or continued ownership of the company you helped build. Those commitments shape how much you can sell—and how much you can place beyond easy reach.
Before comparing strategies, be clear about your family’s spending needs, exposure to the company and need for control.
How much still depends on this company?
Count the shares you hold directly and through funds, alongside any income tied to the company.
Which choices should remain open?
Access, voting rights and the ability to change your mind can matter as much as tax timing.
HYPOTHETICAL PARTIAL-SALE EXAMPLE
What a partial stock sale changes
Consider a family with $12.5m invested, including $7.5m in one company. They need $1m for spending. A $1.5m stock sale meets that need under the assumptions below, but it does not resolve the entire concentration.
Use the worksheet afterward ↗
BEFORE THE SALE
60% of the portfolio is in one company.
The stock is worth more than all the other investments combined. Its value and cost basis are different parts of the decision.
60%
of the portfolio is in one company.
$1.5mCost basis of the shares
STARTING INVESTABLE ASSETS
$12.5m
The stock is the larger part of the family’s portfolio.
WHERE THE CASH GOES
Where the $1.5 million sale proceeds go
The family sells $1.5m of shares. Some proceeds fund spending, some are reserved on the gain, and the balance stays invested.
$1m
The family’s spending need
$1.2m gain × 28%Sets aside $336,000.
Hypothetical reserve, not estimated tax.
Hypothetical reserve, not estimated tax.
STOCK SOLD$1.5m
$300,000 cost basis+$1.2m gain
To the family$1mLeaves the portfolio
for spending
for spending
Set aside$336,000Reserve on the gain
Eventual tax may differ
Eventual tax may differ
Stays invested$164,000Sale cash retained
in the portfolio
in the portfolio
AFTER THE SALE AND WITHDRAWAL
53.7% remains in company stock.
After the withdrawal and reserve, $6m remains in the company. The cash need has been met, while the unsold shares still carry company risk and built-in gain.
53.7%
of the remaining portfolio is still in the company.
$4.8mGain not yet taxed in the remaining shares
(built-in gain)
(built-in gain)
REMAINING INVESTABLE ASSETS
$11.164m
Share in the company60%→53.7%
The $5.164m includes the $164,000 of retained sale cash.
Fixed hypothetical example. $12.5m starting portfolio · $1.5m stock sale · $1m withdrawal. The 28% gain reserve is an assumption, not estimated tax.
Full example & comparison ↓Read the complete example
- Before the sale: The hypothetical family has $12.5m invested: $7.5m in one stock and $5m in other assets. Direct stock concentration is 60%. Stock cost basis is $1.5m.
- The $1.5m stock sale: $300,000 of basis and $1.2m of gain. The assumed 28% gain reserve sets aside $336,000; $1m funds the household withdrawal; $164,000 stays invested. Those three uses account for the same $1.5m sale.
- After the sale and withdrawal: $11.164m remains invested: $6m in stock and $5.164m in other assets and retained sale cash. Direct stock concentration is 53.7%; stock basis is $1.2m and remaining built-in gain is $4.8m. Without a sale, raising the same $1m by selling other assets—assuming half of what is sold is gain, with the same 28% reserve—means selling $1,162,790.70 of them, setting aside $162,790.70, and leaving $11,337,209.30 invested, including $7.5m in stock: 66.2% concentration. Both cases carry a reserve on the gain they realize.
The reserve is hypothetical, not estimated tax. This fixed example is separate from the editable worksheet later in the article.
PARTIAL-SALE COMPARISON
Model a stock sale
Use the worksheet to compare a partial stock sale with raising the same withdrawal from other assets. Change the sale, cash need and reserve assumptions, then examine what remains invested.
Jump to results ↓
AFTER THE FUNDED WITHDRAWAL
Direct stock concentration53.7%
$6m of $11.164m remaining invested
NO STOCK SALE66.2%
Withdrawal funded from other assets.
YOUR PROPOSED SALE53.7%
Withdrawal funded from sale proceeds.
■ One company■ Other assets & retained cash
Concentration is a share of remaining investable assets, not a risk forecast. Other assets, such as funds, may also hold this same company’s shares (indirect issuer exposure); that exposure is excluded here.
TO WITHDRAWALFrom this stock sale
RESERVEDAssumption, not tax due
SALE CASH RETAINEDIncluded in invested assets
- Realized gain on sale
- Provisional reserve on the stock sale
- Reserve on other assets sold
- Funded household withdrawal
- Remaining investable assets
- Built-in gain still in the stock
Follow every dollar
- Remaining stock / basis
- Retained net sale proceeds
- Withdrawal from other assets
- Other assets sold / gain in them
The withdrawal leaves the investment portfolio; it is not counted as investment loss. Each reserve is separately earmarked and may differ from eventual tax.
Immediate price shock after withdrawal. Other assets held fixed; no probability, future tax, or recovery assumed.
The result can help you ask your advisers how to cover any cash shortfall, assess the company exposure that remains and review the terms of another proposed strategy.
COMPARE THE OPTIONS
Alternatives to selling the stock
The example meets a spending need and leaves a large company holding. Other approaches change that balance in different ways. Compare each proposal by its cash, remaining exposure and gain, restrictions, and eventual exit.
DIRECT OWNERSHIPHold, sell, or sell in stagesTax now · less direct exposureDetails ＋
What changes: A sale can reduce direct issuer exposure—the shares of the company you hold outright—and release cash, with gain recognition. A staged plan spreads decisions across time while retaining exposure between sales.
What remains: Unsold shares still carry risk and embedded gain. Trading windows, tax lots, costs, and future cash needs belong in the plan.
Ask: What gain would the sale recognize, and how much loss on the unsold shares could the family absorb?
SEPARATE STRATEGYUse a separate tax-aware long/short strategyFees · financing · eventual unwindDetails ＋
What changes: A separate strategy may generate gains and losses and alter exposures. Harvested losses are not a guarantee of an offset, and the original issuer position does not disappear.
What remains: Financing, fees, leverage, wash-sale coordination, basis changes, and eventual unwinding. Ask for the manager’s and custodian’s actual proposal before modeling benefits.
Ask: What happens when usable losses are scarce—or when we close the strategy?
POOLED OWNERSHIPContribute to a partnership exchange fundAccess rules · carryover gainDetails ＋
What changes: A contribution can exchange direct ownership for an interest in a pooled vehicle, subject to its legal and investment requirements.
What remains: Fund restrictions, fees, underlying exposures, and future recognition. This is a different transaction from an ETF contribution under §351.
Ask: When and in what form can assets leave—and what gain follows them?
ETF CONTRIBUTIONEvaluate an ETF contribution under Section 351Full transaction review requiredDetails ＋
What changes: Ownership form may change without immediate recognition when the applicable conditions are satisfied.
What remains: Investment-company and diversification rules, control, carryover basis, underlying issuer exposure, and scrutiny of the complete plan. A new wrapper alone does not establish diversification.
Ask: What securities go in, who owns what afterward, and which transactions are already contemplated?
CONTRACTS AND DEBTReshape the payoff or borrow against the sharesCollateral · repayment · upside limitsDetails ＋
What changes: A contract can reshape exposure or make borrowing possible. Cash from borrowing is accompanied by debt.
What remains: Collateral terms, maturity, repayment, counterparty exposure, foregone upside, and tax characterization. No universal collar percentage establishes a tax safe harbor.
Ask: What happens at a margin call, a contract adjustment, and final settlement?
CHARITABLE PURPOSEMake a charitable commitmentA lasting charitable commitmentDetails ＋
What changes: An outright charitable gift or a charitable remainder structure can serve a genuine charitable objective. They have different ownership and cash-flow consequences.
What remains: Assets committed to charity are not freely spendable family principal. A trust income interest is not equivalent to access to the contributed assets.
Ask: Would we still want the charitable commitment if the tax result were less attractive?
An ETF contribution needs a closer look because changing the form of ownership does not, by itself, settle the tax or concentration questions.
Legal foundations and limitations: IRS Publication 550, §721, §351, and IRS charitable remainder trust guidance. The economics of these contracts still need research and a review of the actual terms.
SECTION 351 UPDATE · SOURCES REVIEWED 16 OCTOBER 2026
Section 351: how the transaction is structured
An ETF proposal must be examined as a complete plan. The IRS materials discussed here address a particular sequence; the diagram follows the securities and ETF shares through that sequence.
Publicly issued September 28, 2026; assigned to the October 19 bulletin. Diagram is an illustration, not an eligibility result. IRS announcement ↗
01InvestorAppreciated portfolio
02ETFFund receives assets
03APAuthorized participant (ETF trading firm)
Trace the securities and ETF shares in each step.
CONTRIBUTION
The investor receives ETF shares.
The investor contributes an appreciated, already diversified portfolio and receives ETF shares.
CREATION
The AP contributes assets for ETF shares.
An authorized participant—one of the large trading firms that create and redeem ETF shares—contributes securities that fit the ETF’s investment thesis, or cash, for ETF shares.
REDEMPTION UNDER THE SAME PLAN
The investor-contributed securities leave the ETF.
Under the same plan, the ETF redeems the AP’s shares using securities the investor contributed.
All three steps are part of one plan. In step 3, the investor’s contributed securities reach the AP. The ruling treats the investor as making a taxable §1001 exchange of those securities.
A taxable exchange for the affected securities.
Rev. Rul. 2026-20 treats the investor as disposing of the contributed securities used in that redemption in a taxable §1001 exchange with the authorized participant. Multiple investors do not change the result.
Read the ruling, pp. 5–6 ↗The notice does not approve the unaddressed transactions.
Notice 2026-62 leaves specified thesis-consistent ETF seeding transactions outside its discussion when assets are intended and expected to be retained absent a substantial change in circumstances. It does not approve those transactions.
Read the notice, §2.02(2), pp. 9–10 ↗Advisers need the complete transaction
Bring your advisers the vehicle and ownership structure, each contributor’s basket, control and consideration, every planned later step, basis and the intended exit. Ask qualified advisers to evaluate the investment-company rules and other tax questions.
The 25/50 diversified-portfolio exception concerns each contributor’s portfolio; a diversified aggregate pool does not by itself establish it. 26 CFR §1.351-1(c)(5)–(6). This checklist does not determine whether a transaction qualifies.
ADVISER PREPARATION
Prepare for an adviser review
Print the worksheet with your current assumptions. Bring it alongside the family’s spending priorities, the company exposure you are prepared to keep, and the terms of any alternative proposal.
Your entries stay in this page’s memory. No account is created, and the entries are not stored, sent to analytics or submitted. Reloading resets the illustration.
- What cash must be available, and when?
- What direct and indirect issuer exposure remains?
- Where does the built-in gain go?
- What is restricted, pledged, or irrevocably transferred?
- What happens in a bad market—and at the exit?
- Which facts must tax counsel, securities counsel, the custodian, and the investment team verify?
Altar Rock · Advice for your family
What should this holding make possible for your family?
A sale changes the cash you have available and the amount still tied to the company. Andrew Barnes and the Altar Rock team can review those tradeoffs with you in light of your lifetime spending, wealth-transfer plans and philanthropic goals.
Tell us what you are considering and what you need help assessing. You choose what to share.
Altar Rock advisory team
- Cash your family needs, and when
- The company exposure you would retain
- Your plans for passing wealth to the next generation
These guides and tools are educational examples. Advice for your family requires a review of your circumstances with the appropriate investment, tax and legal advisers.