Private company stock can create extraordinary wealth.
Early investors, founders, employees, and executives who receive stock in fast-growing companies such as OpenAI, SpaceX, and Anthropic often see their investment increase dramatically in value over time. But when it comes time to sell, many are surprised by another reality:
A significant portion of the gain may be immediately lost to capital gains taxes.
Whether you own shares in a private technology company, startup, pre-IPO company, or a private stock position acquired through an investment fund, similar to OpenAI, SpaceX, and Anthropic, there may be planning opportunities available before the sale.
One strategy some investors explore is a Deferred Sales Trust (DST). A DST may allow qualified sellers to defer capital gains taxes, keep more of the sales proceeds invested, and have flexibility over when the taxable income is recognized.
The Hidden Tax Problem with Highly Appreciated Private Stock
Many investors focus on the growth of their investment but spend little time planning for the tax consequences of a sale.
Let’s look at a simple example.
Imagine you invested $100,000 into a private company years ago.
Today, your shares are worth $5 million.
That’s great news, until you calculate the taxes.
Depending on your state of residence and tax situation, federal and state capital gains taxes could consume a substantial portion of your gain.
Instead of having the full sale proceeds working for you, a large amount could be paid to taxing authorities immediately after closing.
For many investors, that’s when they begin looking for alternatives.
A Real-World Example: Early SpaceX Investors
Following SpaceX’s IPO on June 12, 2026, many early investors, employees, and shareholders may find themselves holding stock that has appreciated significantly in value over the years.
Imagine an investor who acquired SpaceX shares years earlier for $250,000 through a private investment, employee stock program, or secondary market transaction.
After the IPO, that investment could potentially be worth several million dollars.
While that type of growth is exciting, it may also create a new challenge: capital gains taxes.
If the investor decides to sell all or part of their shares, a substantial tax bill may be triggered. Depending on the investor’s tax situation and state of residence, a significant portion of the gain could be lost to federal and state capital gains taxes.
Instead of having the full pre-tax proceeds available for reinvestment, diversification, retirement income planning, or wealth preservation, a sizeable amount could be paid in taxes immediately.
For investors holding highly appreciated stock, this often becomes a critical planning conversation.
A Deferred Sales Trust may provide a strategy worth exploring before a sale occurs. When structured properly, a DST may allow eligible investors to defer capital gains taxes, keep more capital working for them, have diversified concentrated stock positions, and obtain a repayment schedule aligned with your income needs.
The key is planning ahead. Once a stock sale has occurred, opportunities to implement tax-deferral strategies may be limited or unavailable.
How a Deferred Sales Trust Works with Private Stock
When structured properly and before the sale occurs, a Deferred Sales Trust utilizes installment sale principles that may allow taxes to be deferred rather than recognized all at once.
While every transaction is unique, the process generally follows these steps:
Step 1: Transfer the Stock to the Trust
Before the sale takes place, the seller transfers their stock interest into the Deferred Sales Trust. Instead of receiving the entire sale proceeds immediately, the seller receives a contractual installment note from the trust.
Step 2: The Trust Sells the Stock
The trust then completes the sale with the buyer.
Step 3: Payments Are Made Over Time
The seller receives payments under the agreed-upon terms, potentially spreading the recognition of taxable gain over multiple years.
This structure may provide additional flexibility for income planning, retirement planning, wealth management, and estate planning.
Why Investors Consider a Deferred Sales Trust for Private Stock
Potential Capital Gains Tax Deferral
One of the primary reasons investors explore a DST is the ability to defer taxes that otherwise might be due immediately upon sale.
Keep More Capital Working
Instead of losing a large percentage of proceeds to taxes upfront, more capital may remain available for investment opportunities.
Diversification
Many investors become heavily concentrated in a single company. After a liquidity event, diversification often becomes a top priority.
Retirement Income Planning
The installment payments can be negotiated to support retirement cash flow objectives.
Estate Planning Opportunities
Many sellers integrate their Deferred Sales Trust strategy into broader wealth transfer and estate planning goals.
Why This Matters More Than Ever
Private company valuations have created enormous wealth for investors in companies such as:
- SpaceX
- OpenAI-related ventures
- Stripe
- Databricks
- And countless private technology, healthcare, manufacturing, and service companies
Many investors have life-changing gains but have never experienced a liquidity event of this size before.
The challenge is no longer creating wealth. The challenge becomes preserving it.
Without proper planning, taxes can significantly reduce what remains available for future goals.
Not Every Stock Sale Qualifies
A Deferred Sales Trust is not appropriate for every transaction.
Several factors must be evaluated, including:
- Stock ownership structure
- Transfer restrictions
- Buyer requirements
- Timing of the sale
- Valuation considerations
- Tax circumstances
- Existing agreements
This is why sellers should engage experienced professionals early in the process. Waiting until the transaction is already closing may limit available options.
Why Experience Matters
Private stock transactions can be complex. In addition to the seller and buyer, a transaction may involve:
- Company legal counsel
- Securities attorneys
- CPAs
- Financial advisors
- Trust professionals
The Deferred Sales Trust attorney helps facilitate the transaction by coordinating the legal documentation and working with all parties to help ensure the DST is structured and implemented properly.
At Reef Point, Trustee Greg Reese and the team have been involved in Deferred Sales Trust transactions, helping sellers defer taxes on highly appreciated assets, for more than 10 years.
Experience matters when dealing with sophisticated transactions and significant tax consequences.
Is a Deferred Sales Trust Right for Your Private Stock Sale?
If you own highly appreciated private stock and are considering a sale, now is the time to explore your options.
The earlier planning begins, the more opportunities may be available.
Whether you’re an early employee, founder, executive, or investor, understanding your tax planning options before signing a purchase agreement could have a significant impact on your financial future.
A Deferred Sales Trust may provide a way to defer taxes, preserve more investment capital, diversify risk, and create a more strategic transition from concentrated private stock ownership to long-term wealth management.
Frequently Asked Questions
Can a Deferred Sales Trust be used for private company stock?
Potentially, yes. Certain private stock transactions may qualify, depending on ownership structure, transfer restrictions, buyer requirements, and transaction timing.
Can SpaceX stock be sold through a Deferred Sales Trust?
Every transaction must be evaluated individually. Certain private stock sales may be candidates for a Deferred Sales Trust if structured properly before the sale occurs.
When should I explore a Deferred Sales Trust?
Ideally, before entering into a binding sale agreement or closing a transaction. Early planning generally provides the greatest flexibility.
What is the primary benefit of a Deferred Sales Trust?
Many sellers explore a DST because it may allow them to defer capital gains taxes and keep more capital invested rather than paying taxes immediately after a sale.