Corient Wealth Management Wealth Advisor Glossary

Corient Wealth Management created this wealth advisor glossary to define the exact financial, tax, and succession terms small-business owners face when preparing to sell or transfer a private company.

Every definition cuts through legal jargon and shows what the concept means for your personal balance sheet, your company valuation, and your long-term tax cost.

A

Asset sale

An asset sale is a business transaction where the buyer purchases individual operating assets and equipment rather than the owner's legal equity. For a selling founder, this structure often triggers ordinary income tax on depreciated equipment rather than lower long-term capital gains rates.

B

Basis step-up

A basis step-up adjusts the income tax basis of inherited property to its fair market value on the date of the owner's death. This adjustment eliminates built-in capital gains accumulated during the owner's lifetime, allowing heirs to sell inherited company shares or real estate with reduced tax cost.

Business exit planning

Business exit planning is the process of preparing a company and its owner for a future sale, management buyout, or family succession. The strategy examines enterprise valuation, deal structure, and post-transaction living costs well before signing a letter of intent.

Buy-sell agreement

A buy-sell agreement is a legally binding contract between business partners that governs what happens to company shares if an owner retires, becomes disabled, or dies. It specifies valuation formulas and funding mechanisms, often using corporate-owned life insurance to buyout a deceased partner's heirs.

C

Capital gains tax

Capital gains tax is the federal assessment levied on the profit from selling an investment or business asset held longer than one year. For high-earning business owners, the top federal long-term rate reaches 20%, plus a 3.8% net investment income tax on taxable investment earnings.

Cash balance plan

A cash balance plan is a defined-benefit pension arrangement that lets business owners shelter substantial business profits from current income taxes. For owners in peak earning years, this tool allows contributions exceeding $100,000 annually, well beyond standard 401(k) limits, while providing credits to employees.

D

Defined contribution limit (415(c))

The defined contribution limit sets the total allowable additions to an employee's retirement accounts across worker deferrals and employer profit sharing. For tax year 2026, the 415(c) cap is $72,000, which successful founders routinely target through combined elective deferrals and company matching.

Depreciation recapture

Depreciation recapture is an IRS rule requiring business sellers to pay ordinary income tax rates on gains attributable to prior depreciation deductions. If a manufacturing company sells equipment for a gain, that portion of the sale proceeds faces tax rates up to 37% instead of capital gains.

Due diligence

Due diligence is the rigorous audit conducted by a potential buyer into a private business's financial statements, tax records, customer concentration, and contracts. Thorough preparation prevents surprise price renegotiations or deal collapses during the final stages of a transaction.

E

Earnout

An earnout is a contractual provision where a portion of the business purchase price remains contingent on reaching future revenue or profit benchmarks. It bridges valuation gaps between buyer and seller, though former owners surrender complete control over the operational milestones required to collect those funds.

Estate planning for owners

Estate planning for owners coordinates business governance documents, operating agreements, and private trusts to transfer commercial wealth across generations. Without proper planning, an unexpected death can trigger massive liquidity crunches if estate taxes fall due before the family can sell illiquid enterprise shares.

Estate tax basic exclusion

The estate tax basic exclusion is the amount of property an individual can transfer during life or at death without paying federal gift or estate taxes. For tax year 2026, the basic exclusion is $15,000,000 per person, giving married business founders significant room for wealth transfer strategies.

F

Family business succession

Family business succession is the managed handover of operational authority and corporate ownership to the next generation of family members. A structured succession balances management leadership with fair financial treatment for non-participating siblings to avoid family conflict after the founder retires.

G

Grantor retained annuity trust (GRAT)

A grantor retained annuity trust is an irrevocable structure designed to move appreciating company equity to beneficiaries with minimal gift tax. The business founder retains an annual annuity for a set term; any equity growth above IRS hurdle rates passes to heirs gift-tax-free.

I

Illiquidity discount

An illiquidity discount is a valuation reduction applied to closely held business shares because they cannot be quickly sold for cash on an exchange. Independent appraisers use this discount to lower the reportable valuation of minority company gifts, reducing lifetime gift tax usage.

Installment sale

An installment sale is a deal structure where the seller receives at least one business payment after the tax year of the sale. This spreads the recognized capital gain over multiple years, helping an entrepreneur avoid moving into the top federal tax bracket in a single tax year.

Investing sale proceeds

Investing sale proceeds is the allocation of liquid cash received from a business transaction into diversified public market portfolios. At Corient Wealth Management, the transition focuses on generating reliable cash flow for lifestyle expenses while accounting for market risk and immediate transaction tax liabilities.

Irrevocable life insurance trust (ILIT)

An irrevocable life insurance trust is an independent estate trust established to own policies on a business owner's life outside the taxable estate. When the owner passes away, the death benefit provides immediate cash to pay estate taxes or buyout equity without liquidating the underlying company.

L

Letter of intent (LOI)

A letter of intent is a preliminary document outlining the core terms, purchase price, deal structure, and exclusivity timeline for acquiring a business. While mostly non-binding, signing an LOI commits the business founder to a period of exclusive negotiations that establishes the transaction's trajectory.

M

Medicare IRMAA

The income-related monthly adjustment amount (IRMAA) is a federal surcharge added to Medicare Part B and Part D premiums for higher-income beneficiaries. A large business sale can trigger the maximum 2026 Part B premium of $689.90 a month two years later under statutory look-back rules.

N

Net investment income tax (NIIT)

The net investment income tax is a 3.8% Medicare surtax on passive investment earnings, dividends, interest, and certain capital gains for higher earners. It applies to individuals whose modified adjusted gross income exceeds statutory thresholds, adding meaningful tax costs to post-sale portfolio income.

Non-compete agreement

A non-compete agreement is a contractual covenant preventing a departing business owner from operating or investing in a rival enterprise within a specified geographic area and timeframe. Buyers almost universally demand this clause to protect the commercial goodwill and customer relationships they just purchased.

P

Personal goodwill

Personal goodwill represents business value derived directly from an individual owner's personal reputation, relationships, and specialized knowledge, rather than the corporate entity itself. In asset acquisitions, categorizing a portion of enterprise value as personal goodwill can eliminate corporate-level capital taxation in C corporations.

Q

Qualified small business stock (QSBS)

Qualified small business stock under Section 1202 allows eligible founders of domestic C corporations to exclude up to 100% of capital gains upon sale. Qualifying requires holding original-issue shares for at least 5 years in a company whose gross assets never exceeded $50,000,000 before issuance.

R

Recapitalization

A recapitalization is a restructuring of a company's debt and equity mix, often involving a sale of a minority or majority stake to a private equity group. It allows an entrepreneur to take substantial chips off the table while retaining equity to capture upside in a future sale.

Representations and warranties

Representations and warranties are formal legal assertions made by the seller in a purchase agreement regarding the financial, tax, and operational health of the company. Breaching these assertions can trigger post-closing indemnification claims that require the seller to return cash from escrow.

Required minimum distribution (RMD)

A required minimum distribution is the mandatory annual withdrawal that retirement account holders must take from traditional accounts. Under current law, distributions begin at age 73, or at age 75 for individuals born in 1960 or later, creating taxable income regardless of spending needs.

S

Section 1042 rollover

A Section 1042 rollover allows an owner selling company shares to an Employee Stock Ownership Plan (ESOP) to defer capital gains indefinitely. To qualify, the ESOP must hold at least 30% of the company, and the owner must reinvest sale proceeds into qualified replacement securities.

Seller financing

Seller financing occurs when the owner funds a portion of the purchase price by accepting a promissory note from the buyer. This approach broadens the pool of qualified buyers, though the seller accepts default risk if the business struggles under new leadership.

Stock sale

A stock sale is a transaction where the buyer purchases the seller's actual corporate shares, assuming all corporate assets and liabilities automatically. Sellers generally favor stock sales because all gains are taxed at favorable long-term capital gains rates rather than ordinary income rates.

T

Tax on a business sale

Tax on a business sale encompasses federal, state, and local assessments resulting from the transfer of business ownership. Corient Wealth Management analyzes how asset allocations, installment timing, and state tax rules interact so owners keep a larger portion of their lifetime enterprise value.

W

Working capital peg

A working capital peg is a negotiated target balance of current assets minus current liabilities that the seller must leave in the company at closing. If actual working capital on the closing date falls below the agreed peg, the final cash payout to the seller is reduced dollar for dollar.