What should you do after a major liquidity event? Lots of our clients invested in digital assets and experienced significant returns from their investment, but wanted to take measures to protect and grow their new-found gains.

Whether you decide to sell or hold your assets, there are important things to consider. The decisions you make can secure or jeopardize your financial future. Today we are going to outline ten steps to protect, grow, and keep your wealth after a big crypto cash-out.

Step 1: Create a Family Compass

Begin by establishing a “Family Compass,” also known as a family charter or constitution. This defines your long-term vision for your wealth. Here’s what to consider:

• Core Values: Identify the principles guiding your financial decisions.

• Mission Statement: Clarify the purpose of your wealth—security, lifestyle, philanthropy, or legacy.

• Goals: Determine milestones like funding education, charitable giving, or investment targets.

• Roles & Responsibilities: Assign clear roles to family members in managing wealth to avoid conflict.

This step ensures that all decisions align with your long-term vision. It prevents wealth from causing confusion or conflict.

Step 2: Consult a Tax Professional

A significant liquidity event in crypto typically triggers a taxable event. To navigate this:

• Engage a tax advisor to assess your liabilities and identify strategies to mitigate taxes.

• Consider options like loss harvesting, charitable contributions, or depreciation to offset gains.

• Set aside enough cash for taxes to avoid unexpected penalties.

Tax laws evolve rapidly, so it’s critical to stay informed and work with experts.

Step 3: Build a Liquidity Buffer

Set up an emergency fund with three to twelve months’ worth of living expenses. This fund ensures financial security during market volatility.

Options for maintaining liquidity include:

• Money market accounts or high-yield savings accounts.

• Lines of credit secured by crypto assets.

Avoid drastic decisions like quitting your job immediately after a windfall. Instead, give yourself time to adjust and develop a sustainable plan.

Step 4: Diversify Your Investments

Crypto markets are highly volatile, so diversification is essential. Consider allocating assets to uncorrelated investment categories such as:

• Real Estate: Leverage depreciation strategies to offset taxes.

• Stocks and Bonds: ETFs or index funds can provide stability and steady growth.

• Alternative Investments: Explore opportunities in commodities, private equity, or venture capital.

As investor Kevin O’Leary advises, never put more than 20% of your wealth in any one asset class or 5% in a single investment.

Step 5: Hold Crypto as a Long-Term Wealth Driver

Crypto can serve as a valuable long-term asset. If you choose to hold, explore opportunities like:

• Staking: Generate passive income by participating in network validation.

• Decentralized Finance (DeFi): Utilize liquidity pools or lending platforms.

• Generational Wealth: Plan to pass down crypto holdings as a legacy for future generations.

Staying patient through market volatility can yield significant long-term rewards.

Step 6: Establish a Family Office

For those with substantial wealth (typically $20 million or more), a family office can streamline financial management. Key services include:

• Investment strategy development.

• Tax and estate planning.

• Lifestyle management.

A family office aligns all financial activities with your long-term goals. It also mitigates risks.

Step 7: Protect Wealth and Mitigate Risk

Safeguarding your assets is critical. Strategies include:

• Trusts: Options like dynasty trusts, spendthrift trusts, or offshore trusts can secure your wealth.

• Institutional Custody: Partner with reliable custodians to ensure your digital assets are protected.

• Insurance: Consider private placement life insurance (PPLI) or additional coverage for digital assets.

Regular reviews of your financial structure ensure continued alignment with your goals.

Step 8: Develop Philanthropic Interests

If philanthropy is part of your vision, explore options like:

• Donor-advised funds.

• Private foundations.

• Charitable remainder trusts.

Not only do these structures enable impactful giving, but they can also offer tax benefits.

Step 9: Legacy Planning for Future Generations

Plan for the future by establishing structures to benefit your descendants. Consider:

• Generational-skipping trusts.

• Life insurance policies for future generations.

• Governance frameworks for family wealth distribution.

Legacy planning ensures your wealth provides security and opportunity for years to come.

Step 10: Stay Educated and Adapt

The financial landscape evolves constantly. Stay informed by:

• Attending conferences or taking courses on financial management.

• Monitoring market trends and regulatory changes.

• Exploring new investment opportunities like AI or emerging technologies.

Continuous education empowers you to make informed decisions and adapt to new challenges.

Take The Right Steps For Success

Whether you’re cashing out, holding crypto long-term, or building a legacy, success lies in acting with intention and strategy. By following these ten steps, you can safeguard your wealth and secure your financial future.