The headline price of a sale is not the money you will invest. This planner starts from the cash proceeds, takes out selling costs, debt, tax, gifts, spending and reserves, and shows what is actually left to deploy. It then compares investing that sum at once with waiting for a period you choose. An optional second scenario adds a policy allocation and, separately, a postponed tax payment, which stays on the balance sheet as a liability until it is paid. The results are only as good as the inputs, and a sale, inheritance or trust distribution still needs its own legal and tax review.
Deal value, taxable gain and spendable cash are three different numbers. Start with the closing statement and your own tax calculation, then sort each payment: does it reduce cash, change the taxable gain, or stay on your balance sheet as an asset? The planner follows the sequence you enter. Whether that sequence is legally open to you is a question for your advisers.
A cash reserve remains inside this projection. Gifts and amounts entered as spending are removed; purchased property and other personal assets are not valued. Debt repaid from the cash proceeds reduces the amount available here. Other liability arrangements can affect amount realized and are outside this simplified cash-sale model. Publication 544 explains why a gross headline amount may require reconciliation before it is entered.
Timing matters because cash and a portfolio earn different after-tax returns, and either one can come out ahead. If your cash assumptions are strong enough, waiting can improve the modeled result. The waiting period sits inside the horizon you select, so the delayed path is not quietly handed extra years of investment.
Everything here is a scenario you define. There is no database of past deals behind it, no market forecast and no probabilities. Spending, reserves and setup costs are fixed dollar amounts, so they do not grow when you change the sale price. A larger sale will not simply produce a proportionally larger result; check each figure.
Some transaction choices have to be made before the sale becomes binding, and the deadlines vary. Buying a policy does not defer tax on the sale. Keep two conversations apart: how to structure the transaction, and how to invest what is left after tax. Planning around a liquidity event discusses those distinct questions.
The reviewed model calculates a closing ledger and event-anniversary balances for up to 60 years. It uses explicit flat-rate assumptions and a pooled-basis investment method. The formulas below show how it works. Your tax return, the purchase-price allocation and the insurer's own illustration will still govern the real numbers.
For the modeled cash sale, qualifying selling costs are deducted from gross cash proceeds. Positive gain is that amount less adjusted basis. Debt repayment, tax, the cash gift, spending and the permanent reserve then determine deployable capital. A negative balance is reported as a funding gap, and wealth projections are withheld. Outside borrowing or contributions are not silently assumed.
deployable capital = gross cash - qualifying selling costs - debt repayment
- modeled event tax - gift - spending - permanent reserve
Scenario B closing tax paid = event tax × (1 - postponed share)
Scenario B tax reserve = event tax × postponed share
net wealth = waiting cash + taxable investments + policy cash value
+ permanent reserve + tax reserve
- selected endpoint taxes - unpaid postponed tax
The closing table and waterfall expose each source, use and remaining balance. A reserve is deducted in calculating the amount sent to the portfolio, then added back as a separate asset in future wealth. This prevents a reserve from being treated as money that disappeared or from being counted twice.
The positive modeled gain is split among ordinary, short-term and long-term portions. Each uses its own federal rate plus the entered state and local rate. A separate NIIT rate is multiplied by the entered effective share of gain. That share must already reflect relevant base limitations. The model does not calculate modified adjusted gross income, brackets, recapture or the section 1061 rules.
The full charitable cash gift reduces available cash. Its current tax benefit is a separate dollar input supplied from an external tax calculation, bounded by the modeled event tax and gift amount. It is not a charitable deduction subtracted from selected capital-gain categories. The tool calculates no deduction eligibility, carryforward or percentage limitation. Publication 505 for 2026 describes current-year changes, including the itemized charitable deduction floor.
Waiting cash earns the entered yield at the portfolio ordinary tax rate. Deployment occurs after the specified whole number of months. If the delay extends beyond the selected horizon, those funds remain in cash throughout that comparison. The immediate path uses the same initial deployable capital and permanent reserve, with no waiting period.
The selected portfolio supplies fixed asset weights and tax-character assumptions. Asset returns and flat costs are scaled proportionately to match the entered total return and cost. Net fund-level return after those costs is split into current income and appreciation. Recognized positive gains and current income are taxed at the separate portfolio rates; current income and recognized gains increase pooled basis, while taxes paid from the account reduce it. Actual rebalancing trades and their taxes are excluded. Portfolio Tax Drag uses a separate taxable-rebalancing method.
The permanent cash reserve remains invested in cash for every modeled year. Its current interest tax is included in total taxes paid. No withdrawals replenish or consume it. The model shows the balance growing; it says nothing about deposit insurance, access in a crisis or whether the reserve keeps pace with inflation.
Within each event year, returns, flat costs, gain-recognition shares and applicable policy charges are prorated for the fraction spent in the portfolio. Cash interest is likewise prorated for a partial waiting year. Whole subsequent years compound on the prior closing balance. This explicit simple-period convention replaces an extrapolation of average tax and fees from a whole-year run; it is not a daily tax-lot simulation.
Scenario B applies its policy share to deployable funds when the waiting period ends. External setup is paid from that allocation. The remainder funds premium plus the assumed excise cost; premium load then reduces the policy cash value. Contract investment equals premium, including load but excluding external setup and excise. The personal remainder stays taxable. Account charges, insurance charges and administration are paid before policy investment growth, with available cash capping actual payments.
Optional postponed event tax is independent of policy funding. The entered percentage applies to modeled event tax, not capital gain. The full postponed principal is placed in a separate cash reserve at closing and remains a liability until paid at the selected year-end. Net wealth subtracts that liability before payment. After payment, any remaining reserve contains accumulated after-tax earnings. The model does not forgive the liability at death or treat the postponed principal as policy capital.
The first deployed period prorates annual insurance and administration charges. Insurance-charge escalation applies at each later event anniversary. Unpaid scheduled charges are recorded after account exhaustion; zero cash value does not represent continuing coverage. All pricing and payment-date assumptions require reconciliation with actual terms. PPLI Break-Even provides a separate full-year cost comparison.
Holding deducts no final realization tax. Full liquidation deducts the portfolio preferential rate on positive taxable gain; full policy surrender uses the portfolio ordinary rate on value above contract investment. The qualifying death sensitivity assumes relevant exclusion and inherited-basis treatment, with policy cash value standing in for comparison purposes. It excludes actual death benefits, estate tax, exceptions, loans, partial withdrawals and lapse taxation. Unpaid postponed event tax remains a liability under every endpoint.
Use the tool only where these conventions describe the question being tested. Where they do not, a precise-looking result can still be inappropriate.
Returns and rates are constant. The model omits volatility, sequence risk, inflation, currency movements, defaults and changes in tax law. It assigns no probability to an immediate-investment advantage, a policy lead or a future cash balance. Negative gross returns are outside the input range, although costs can exceed return.
Event inputs approximate US tax character with flat federal and state rates. They do not model corporate and shareholder tax layers, section 1231 lookback, recapture detail, state apportionment, residency changes or cross-border taxation. Portfolio rates are separate combined inputs. Do not carry an event-specific exclusion into later investment income automatically.
Scenario A pays all modeled event tax at closing. Scenario B can reserve and postpone an externally established portion until one chosen year-end. It does not calculate installment-sale eligibility, an earn-out, escrow, qualified small business stock exclusions, loss carryforwards or estimated-payment safe harbors. Entering a later payment date in the model does not give you a legal right to pay later.
Postponed tax starts at zero. If it is enabled, the same nominal principal is reserved and eventually paid. The model excludes interest charged on a tax liability, penalties, legal fees for creating a deferral and changes in future liability. It is unsuitable for a schedule with several tax payments unless those cash flows are modeled separately.
The concentrated destination allocates 33% of newly invested cash to a hypothetical concentrated holding with stated income and gain recognition. It does not retain one-third of the original business or shares, reduce the sale proceeds, preserve their old basis or value concentration risk. A partial-sale decision requires a different opening balance sheet.
Spending is a single outflow at closing. Later contributions, gifts, required distributions, policy loans and ongoing withdrawals are excluded. Use the Wealth Simulator for a separate taxable drawdown illustration, and reconcile its assumptions with this page.
Published by PPLI.com. Reviewed 17 September 2026. The model passed 1,152 event, allocation, horizon, delay and endpoint cases and 105 independent future-value checks. Additional checks cover tax-payment reserves, unpaid liabilities, charge exhaustion and invalid inputs. Those tests confirm the arithmetic under the stated conventions. They say nothing about legal eligibility or whether an investment suits you. See editorial standards.
All three cash-sale examples use 3% qualifying selling costs, basis equal to 2% of proceeds and debt repayment equal to 8%. Ten percent of positive gain is ordinary and 90% is long-term. Federal event rates are 37% ordinary, 37% short-term and 20% long-term, plus 5% state and local. The effective NIIT share is zero as an explicit assumption. There is no gift or tax benefit. The balanced destination has a 7.30% gross return, 0.65% flat investment cost, 42% ordinary and short-term portfolio rates and 25% preferential rate. Cash yields 4.20%. The endpoint is continued holding.
| Measure | $25 million | $50 million | $100 million |
|---|---|---|---|
| Gross cash proceeds | $25,000,000 | $50,000,000 | $100,000,000 |
| Adjusted basis | $500,000 | $1,000,000 | $2,000,000 |
| Qualifying selling costs | $750,000 | $1,500,000 | $3,000,000 |
| Debt paid at closing | $2,000,000 | $4,000,000 | $8,000,000 |
| Modeled event tax | $6,341,250 | $12,682,500 | $25,365,000 |
| Spending | $2,000,000 | $3,000,000 | $5,000,000 |
| Permanent cash reserve | $2,000,000 | $5,000,000 | $10,000,000 |
| Deployable capital | $11,908,750 | $23,817,500 | $48,635,000 |
| Deployment share of gross | 47.63% | 47.63% | 48.63% |
| Waiting period | 0 months | 12 months | 6 months |
| Immediate less delayed, year 30 | $0 | $2,476,007 | $2,437,545 |
| Wealth at year 10 | $22,426,211 | $45,134,728 | $92,948,498 |
| Wealth at year 30 | $56,378,616 | $112,339,855 | $231,582,663 |
The $25 million case spends $2 million, reserves $2 million and deploys immediately. The $50 million case spends $3 million, reserves $5 million and waits 12 months. Their deployable amounts are $11,908,750 and $23,817,500. Their equal deployment percentages follow from these specific inputs; changing only gross proceeds while holding dollar costs fixed would not preserve the percentage.
The $100 million case spends $5 million, reserves $10 million and waits six months. It has $48,635,000 available for deployment. At year five, total modeled wealth is $73,747,623, including the cash reserve. Comparing that figure with gross transaction proceeds mixes investment performance with taxes and other cash uses. It is not a portfolio performance calculation.
| Measure | Scenario A | Policy allocation only | Policy plus reserved tax timing |
|---|---|---|---|
| Event tax paid at closing | $25,365,000 | $25,365,000 | $20,292,000 |
| Postponed principal reserved | $0 | $0 | $5,073,000 |
| Deployable funds at closing | $48,635,000 | $48,635,000 | $48,635,000 |
| Policy charges paid through year 30 | $0 | $13,424,702 | $13,424,702 |
| Net wealth at year 5 | $73,747,623 | $73,068,182 | $73,716,919 |
| Net wealth at year 10 | $92,948,498 | $92,630,644 | $93,362,342 |
| Net wealth at year 30 | $231,582,663 | $242,541,929 | $243,726,017 |
| Difference from Scenario A, year 30 | $0 | $10,959,265 | $12,143,354 |
| Lead sustained through year 30 | Reference scenario | Year 13 | Year 6 |
The next table adds Scenario B to the $100 million case. Forty percent of deployable funds at deployment is allocated to a policy, with $250,000 external setup, a 1.5% premium load, zero excise cost, a 0.6% account charge, $90,000 first-period annualized insurance charge escalating 3% and $18,000 annual administration. The middle column has no postponed event tax. The last column separately postpones 20% of modeled event tax until the end of year five and fully reserves that principal. These are hypothetical terms, not a product quote or available tax arrangement.
The policy-only scenario leads from year 13 through year 30 under holding. Adding the separate postponed-tax reserve changes the sustained lead to year 6. The additional year-30 value from that timing assumption is $1,184,089, entirely the remaining after-tax earnings on the separate reserve. The postponed principal was paid in year five. Changing the endpoint, charges or payment schedule can reverse the comparison.
These sources explain the legal distinctions behind the inputs. The planner itself only applies your assumptions; it does not run the statutory tests. Publication 544 addresses business-sale gain and amount realized; Publication 550 explains investment-income and gain categories.
For individuals, section 1411 generally applies a 3.8% tax to the lesser of net investment income or modified adjusted gross income above the applicable filing-status threshold. Whether sale proceeds enter that base requires separate analysis. The planner asks for an effective share of modeled gain; it does not determine the threshold or apply all business-interest rules. Read the IRS NIIT guidance.
Section 1061 can recharacterize certain gains related to an applicable partnership interest by reference to a three-year holding period. Its definitions, exceptions and calculation rules matter; not every fund distribution or carried-interest receipt is automatically short-term. The preset percentages are illustrative. Treasury Decision 9945 contains the regulations.
Inherited-basis treatment is not universal, and an adjustment can be downward. Income in respect of a decedent follows different rules. The insurance death-proceeds exclusion also has exceptions. Publication 551, Publication 559 and Publication 525 explain the relevant distinctions. Full surrender is a different event from death or a partial withdrawal.
A charitable gift is not interchangeable with its deduction or its tax benefit. For 2026, the IRS describes a 0.5% adjusted-gross-income floor for itemized charitable deductions, alongside other applicable limitations. The planner calculates none of those rules and accepts only a separately supplied current tax benefit. Read Publication 505 (2026).
Your own effective rates, whether a transaction qualifies, the actual policy charges and investment returns all have to come from current documents for your jurisdiction. For policy qualification and ownership questions, see the life-insurance and diversification framework and Wealth Structure Intelligence.
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