California’s billionaires are doing what billionaires tend to do whenever a major new tax appears on the horizon: calling lawyers, accountants, wealth advisers, and anyone else who might help them keep more of their money.
As November approaches, some of the Golden State’s wealthiest residents are scrambling to prepare for a controversial ballot measure that could impose a one-time tax of up to 5 percent on fortunes exceeding $1.1 billion. The proposal has sparked a frenzy of planning among high-net-worth individuals who suddenly find themselves staring at a potentially enormous bill from Sacramento.
The measure would calculate a person’s net worth at the end of this year, provided they were California residents on Jan. 1. For those just over the billion-dollar threshold, lower rates would apply before gradually increasing for larger fortunes.
That looming deadline has turned wealth management offices into something resembling emergency response centers.
According to advisers speaking with The Wall Street Journal, phones have been ringing nonstop as clients seek guidance on how to minimize exposure. Some have already made the most obvious move: leaving California altogether. Others have decided they’d rather stay put and look for legal ways to rearrange their finances.
One longtime California real estate investor, described by tax adviser Andrew Katzenstein, has no interest in packing up and moving. Instead, he’s accelerating charitable donations that were already part of his family’s long-term plans.
“People take steps to take advantage of the tax law before it changes all the time,” Katzenstein explained. “This is just another example of that.”
The investor reportedly believes that if he’s going to part with more money, he’d rather direct it toward charitable causes than send it to the state government. Considering he has already donated hundreds of millions over the years, he’s hardly starting from scratch.
Elsewhere, the planning has become even more creative.
One early employee at an artificial intelligence company expects roughly $300 million in stock to vest this year. That windfall could suddenly place him within striking distance of billionaire-tax territory. His advisers are now examining whether some of those shares can be donated before they officially become his.
Other entrepreneurs are reportedly delaying fundraising rounds for their companies. The reason is simple: a higher company valuation can make founders look wealthier on paper, even if that wealth remains largely tied up in their businesses.
Then there are the luxury purchases.
Some advisers say clients are considering buying expensive assets outside California, including vacation homes, artwork, yachts, and other high-value property. The hope is that certain assets located elsewhere may receive more favorable treatment under the proposal’s framework.
Others are restructuring real estate holdings, moving properties out of LLCs and into different ownership arrangements that could potentially reduce exposure.
But before anyone imagines billionaires have discovered a secret escape hatch, experts warn the options are far more limited than many assume.
The proposal contains anti-avoidance provisions specifically designed to prevent transactions that exist solely to dodge the tax. In other words, simply moving money around for appearance’s sake may not work.
David Gamage, one of the architects of the proposal, offered a colorful warning.
“I like to tell my students this maxim of tax-planning: Pigs get fed, hogs get slaughtered,” he said.
The message is clear: careful planning may be permissible, but aggressive schemes could invite trouble.
Supporters of the measure argue that California’s wealthiest residents can afford the contribution and say the tax could raise as much as $100 billion to help offset healthcare funding challenges. Critics counter that California already struggles with an image problem among entrepreneurs and investors and that another major tax could encourage even more wealthy residents to leave.
Meanwhile, some Californians are coping with the proposal through humor.
Wealth adviser Jennifer Kowal says a handful of married clients have jokingly discussed divorce because spouses’ assets are combined when calculating net worth under the measure.
No one appears to be rushing to family court just yet. But the fact that the joke is being made at all says something about the anxiety surrounding the proposal.
For California’s billionaire class, the countdown to November has already begun. Whether they’re accelerating charitable donations, buying vacation homes, restructuring assets, or simply making nervous jokes about their marriages, one thing is certain: they’re paying very close attention to what voters decide.
