How PE Professionals Protect Their Carry: Financial Planning, Tax Strategies & Trusts Explained

Financial planning for private equity professionals comes with a lot of variability. A large portion of your income depends on carry, and you do not know its value or its timing. Your bonus depends on overall performance, and co invest needs create liquidity issues. Planning for a house, private school, and vacations on top of those unknowns is tough.

This article covers three areas where I think holistic wealth management can drive results for private equity professionals: scenario based financial planning, tax loss harvesting ahead of carry being realized, and estate and gift planning.

How to build a financial plan around carry and bonus

Before investing or estate planning, I start with a scenario based financial plan. I approach it the way you would model outcomes at a business, using various assumptions to build three cases based on your carry and bonus amounts and the timing of the carry:

• Upside case. More carry than expected, arriving earlier.
• Base case. The expected carry at the expected time.
• Downside case. Lower carry than expected, arriving late.

Essential goals and dream goals

I compare those cases to your goals, which I break into two tiers. Essential goals are the things you know you need to achieve, such as the house you live in day to day and your kids' schools. Dream goals are the things you want when things work out, such as a vacation house.

The aim is to understand how you achieve the essential goals even in the downside case, and how the timing of the dream goals can accelerate in the base and upside cases. It is helpful modeling that builds comfort in the approach you are taking to spending.

Using tax loss harvesting to offset carried interest gains

The challenge in this industry is that you do not know when investments will be sold and your carry realized. You do know you will hopefully owe capital gains tax when they are, and there are ways to reduce that bill.

One of the best is to hold a taxable brokerage account of liquid securities and aggressively harvest tax losses in it. Those losses carry forward and can offset the gains when the private investments are sold. Tax loss harvesting is a systematic strategy of selling losses created by volatility in a stock portfolio while still mimicking the returns of general indices. It has pros and cons, but for someone confident they will have a large taxable gain in the near future, it is a very useful tool. I cover the mechanics in direct indexing and tax loss harvesting.

How much can tax loss harvesting save?

As a general case based on historical data, someone with a $1 million stock portfolio can typically harvest:

• 3% to 7% of the portfolio per year with standard tax loss harvesting
• 7% to 15% per year with levered long short tax loss harvesting

If you assume 5% and 10%, that is $50,000 or $100,000 of losses per year to carry forward against the eventual capital gain on your private investments. Do that for 5 years and you start to build a cushion. Even with a $1 million taxable brokerage account, the tax savings can reach 6 figures fairly quickly when the private investments are sold.

Estate planning for private equity professionals

When I think about estate planning, two things need to happen.

1. Core logistics. Is your family prepared for an unexpected death? This means making sure your wills, revocable trust, and power of attorney are airtight. It is important regardless of net worth.
2. Estate tax planning. This matters for people who are high net worth and above federal or state exemption limits. In 2026, the federal exemption is $15 million per person or $30 million per couple, but many states, New York included, have lower limits. A net worth of $7 million or $15 million may be enough to affect taxes for the next generation.

If you are not at that net worth yet but will be once carry pays out, there is a lot you can do now to prepare.

Why carried interest works well for gifting

A major benefit private equity investors have is that carry starts as a relatively low value asset and can become a large payout. When you move that asset out of your estate, it takes a relatively small amount of your exemption compared with the future payout, which then grows outside your estate.

I think it is essential to partner with estate planning attorneys who understand private equity. These laws are changing fast, and high tax states are doing everything they can to limit these moves.

Common questions

How do you plan your finances when carry is unpredictable?

I build downside, base, and upside cases for the amount and timing of carry and bonus, then compare them to essential goals and dream goals.

Can tax losses offset gains from carried interest?

Losses harvested in a taxable brokerage account can be carried forward and used to offset capital gains when private investments are sold and carry is realized.

When should private equity professionals start estate planning?

Core documents are important at any net worth. If carry is likely to push you above exemption limits, there is a lot to do now, while the carry is still a relatively low value asset.

VDB Wealth is a registered investment adviser. Information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.

Hi, my name is Andy and I am the founder of VDB Wealth. I recently recorded three separate videos on what I view as important topics for private equity professionals and how holistic wealth management can really drive outsized results for their financial situation. First, I touched on building a variety of cases for financial planning depending on the timing and amount of carry and bonus and things of that nature. Then I talked about tax loss harvesting and how doing that effectively can reduce your tax bill when you have big investments sell. In the third video, I talked about a variety of trust and estate strategies that private equity professionals should be considering. So, I've included the three videos here. They're short, quick, and I hope you enjoy.

This is video number one in a series of videos where I talk about the benefits of holistic wealth management for individuals who work at private equity firms. Now, I know there's a lot of sexy topics out there. Moving your carried interest out of your estate, using tax loss harvesting to build up tax losses ahead of your investments being realized to limit your tax impact. And all of those are sexy, but I wanted to start with something a little more fundamental. I want to talk about how individuals in this career path should be thinking about financial planning.

There is a lot of variability when you are a late stage private equity employee. A large portion of your income is dependent on your carry, which you do not know the value of it or the timing of it. There's a lot of liquidity issues due to co invest needs and your bonus is also dependent on overall performance. And so when you take all of those unknowns and you try to plan for the life that you want to lead, the house you want to buy, the kids' private school, the vacations, the vacation houses, it's really tough.

And so before you even think about investing or estate planning, it's essential to build a scenario based financial plan. And what I like to do is similar to how you model outcomes at a business. I like to use various assumptions and build downside, base, and upside cases based on your carry and bonus amounts, the carry amount as well as the timing. And then you compare that to the goals you may have.

And I like to break goals into two tiers. The first being essential goals. So, you know, the house we want to buy to live in on a day to day basis, the kids' schools, things that I know I need to achieve. And then dream goals. And these are the things that you want to achieve when things work out, buy a vacation house, a variety of other things that you may want to achieve in your life.

And so then I like to compare those goals to three different cases. As I said, one where you get more carry than expected in earlier timing, or a base case where you get the expected carry at the expected time, or the downside case which is lower than expected carry and it comes late. And so I'd like to use those tools and hopefully understand how do we achieve the essential goals even in the downside case and how do we look at timing and the acceleration of when you can achieve those dream goals in the base and the upside case.

Once again, this isn't essential, but it's helpful modeling to help you build the right way to think about your own financial plan and ultimately build comfort in the approach that you're taking from a spending standpoint.

Today, I want to talk about something maybe a bit sexier and that is using tax loss harvesting to reduce your tax bill when investments are sold and carry is realized. The challenge of working in this industry is you don't know when investments are going to be sold and your carry will be realized. What you do know is you will hopefully be paying capital gains tax on those investments when they're sold because of the gain. However, there are ways to minimize that tax bill as much as possible.

One of the best ways to do that is to have a taxable brokerage account of liquid securities that you are aggressively harvesting tax losses which you can then carry forward to offset against the tax gains when you sell the private investments. Tax loss harvesting as a strategy has pros and cons, but for someone who is confident they will have a large taxable gain in the near future is an incredible tool to limit the tax bill on that.

Tax loss harvesting is a systematic strategy to aggressively sell losses due to volatility on a stock portfolio while still mimicking the returns of general indices. We could talk for 30 minutes about how it works, but I want to keep it relatively simple for this short video. But in a general case, historical data, someone with a million dollar stock portfolio can typically harvest 3 to 7% of that portfolio per year with standard tax loss harvesting and 7 to 15% with levered long short tax loss harvesting.

So if you think about that million dollar portfolio, let's assume it's 5% and 10%. You can harvest $50,000 or $100,000 of losses that you can then carry forward to eventually offset your capital gain when you sell your private investments. And that is on an annual basis. So if you do that for 5 years, you can really start to build a cushion to help reduce your tax bill. And even if you have a million dollar taxable brokerage account, you can pretty quickly save six figures in taxes when the private investments are sold.

This is a great tool for private equity professionals because it helps them limit their tax bill eventually when the private investments are sold. This is a very nuanced topic, so I'll stop here, but if you have any questions or interested in learning more about this, feel free to reach out.

In this video, I'm going to talk a little bit about estate and gift optimization. When I think about estate planning, there are two things that need to happen. The first is, is your family prepared for any unexpected death? So, to me, this is more of the core logistics, ensuring that they're airtight. So, your wills, your revocable trust, your power of attorney, and things like that. That is important regardless of your net worth.

Then there's the second bucket, which is really important for individuals that are high net worth and above any federal or state exemption limits. Right now, the federal exemption limit is $15 million per person or $30 million per couple, but many states have exemption limits lower than that, New York included. And so there's a lot that can happen when you may only have a net worth of seven or 15 million that may impact taxes for the next generation if anything were to happen.

And so for individuals who may not have that net worth yet, but are going to be there with carry payouts, there's a lot you should be doing now to prepare and optimize for that future state. And what I find important here is it's essential to partner with the right PE aware estate planning attorneys. These laws are changing fast and these high tax states are doing everything they can to limit the ability of individuals to move things out of the state.

But one major benefit that private equity investors have is these large assets and payouts that come from carry that starts as a relatively low value asset. And so when you move that asset out of your estate, it takes a relatively small amount of your exemption relative to the future payout which will grow out of your estate. And so for private equity individuals, there's a lot of strategies and a lot you can be doing to limit your overall taxes as you think about next generation.

So, if you want to learn more or talk about how estate planning can benefit you as you think through the next 10 years of your life, I'd be happy to have a conversation as we talk about how this is just one part of your holistic wealth strategy.