The 2026 Billionaire Tax Act has sparked significant concern among high‑net‑worth individuals and their advisors. This tax enacts a 5% tax on the wealth of California residents who have accumulated over $1 billion in wealth Unlike traditional income or capital‑gains taxes—which follow long‑established principles of realization and recognition—a wealth tax functions on an entirely different premise. That difference introduces new risks, greater complexity, and, most importantly, serious liquidity challenges.
What Makes the Wealth Tax Unique?
Under the proposed structure, assets above a certain exemption threshold would be taxed annually—regardless of whether those assets produce income or are sold. This means taxpayers could owe substantial amounts on illiquid holdings such as:
- Real estate
- Privately held businesses
- Investment partnerships
- Collectibles
- Equity positions without ongoing cash flow
As highlighted by Succession Capital Alliance’s Chief Distribution Officer, Michael Rothman, this tax does not observe the traditional timing rules that allow taxpayers to control when income is recognized and associated taxes are paid. Instead, the wealth tax demands cash tied to assets the owner has no intention—or ability—to liquidate.
This disconnect between net worth and available cash is where the real problem begins.
The Real-World Liquidity Challenge
It’s helpful to use a simple analogy:
Imagine the Billionaire Wealth Tax is passed, and you have $1 million sitting in your attic —but it’s entirely in gold bars…
Suddenly, the IRS arrives and demands $400,000 in cash, not gold. You are “wealthy” on paper, but you do not have the cash required to satisfy the tax obligation.
This is the core issue behind the wealth‑tax model:
You’re taxing something that hasn’t be sold or generated income – regardless of whether the taxpayer has the cash to cover that tax.
Most people—even the ultra-wealthy—do not keep much of their net worth in liquid assets. Wealth is typically tied up in long‑term holdings or operating businesses. Liquidating them quickly to raise funds can force taxpayers into:
- Distressed sales
- Unfavorable valuations
- Increased debt
- Partial or complete loss of businesses or properties
And for many high‑net‑worth individuals, significant leverage is normal. Real estate and private businesses frequently carry strategic debt. So, when a wealth tax demands cash:
- You owe the tax
- You still owe lenders
- And the IRS becomes first in line when liquidity is created
This means even a well‑structured balance sheet can collapse under the pressure of a large, unexpected cash obligation.
How Estate Tax Complicates the Picture Even Further
While California’s proposed billionaire wealth tax introduces a new layer of financial pressure during life, the federal estate tax creates a parallel challenge at death—one that behaves much closer to a wealth tax than most clients realize. When a person dies, their assets are treated as if a realization event has occurred, even if nothing has been sold and no liquidity has been raised.
Legally, a deceased person’s property is considered abandoned, and although the state allows that property to pass to heirs, it does so only after imposing a tax on the entire estate. In other words: the estate tax, like the wealth tax, demands cash for illiquid assets.
This makes the estate tax incredibly difficult for wealthy individuals whose net worth is tied up in businesses, real estate, private equity, or founders’ stock.
When death triggers the valuation of the full estate, heirs may be forced into rapid sales simply to raise the liquidity needed to satisfy the IRS.
For advisors, the key insight is this: the proposed wealth tax wouldn’t replace the estate tax; it would compound its impact. Clients have to manage a realization-style tax event at death. That means carefully evaluating
- How assets are held (trusts, foundations, partnerships),
- Where they are held (including residency considerations), and
- When transfers occur relative to the wealth tax’s 2026 valuation date.
Estate planning has always been complex.
Why Succession Capital Alliance Is Uniquely Positioned to Help
Succession Capital Alliance is uniquely positioned to support advisors and their clients as California’s proposed wealth tax raises urgent concerns about liquidity, timing, and long‑term wealth preservation. When tax obligations—especially those triggered by estate transfers, large liquidity events, or potential wealth‑tax legislation—the IRS does not wait for assets to sell. Deadlines are fixed, valuations may fluctuate, and the risk of forced liquidation is real.
This is where SCA brings extraordinary value to the planning conversation.
SCA has the most innovative and powerful strategies available to help mitigate the impact of a wealth tax in the most efficient and intelligent way possible. Through advanced life‑insurance‑based liquidity solutions, optimized structuring, and decades of expertise in complex‑wealth environments, SCA helps ensure that clients are never forced into distressed sales, destructive borrowing, or unnecessary erosion of their net worth simply to satisfy a tax obligation.
Whether clients face illiquid business interests, concentrated stock positions, real‑estate holdings, or multigenerational wealth transfers, SCA equips advisors with the tools to:
- Create predictable, tax‑efficient liquidity precisely when it’s needed
- Protect hard‑built assets from forced liquidation or discount sales
- Stabilize balance sheets during volatile market cycles
- Ensure heirs, partners, and stakeholders are not burdened by urgent tax deadlines
- Build long‑term plans that anticipate legislative risk—before it becomes a crisis
In a landscape where the rules are shifting and liquidity risk is growing, advisors need partners capable of forward‑thinking, high‑impact planning. Succession Capital Alliance stands at the forefront of that mission, helping clients remain prepared, protected, and positioned for success—no matter how the California wealth‑tax initiative unfolds.
