Gifting Early-Stage Business Interests: Locking in Tax Savings Before Growth or Liquidity Events

For many ultra-high-net-worth families, the most valuable asset isn’t a portfolio of marketable securities—it’s an operating business. If you’re an owner in the early or mid-growth stages, or on the path toward a major liquidity event (sale, IPO, etc.), gifting business interests to family or trusts before the value spikes can lock in substantial estate tax savings.

Now that the $30M married couple exemption is permanent, the window for planning is extended, but the math is the same: the earlier you act, the more growth you can shift out of your estate—tax-free.

Why Early-Stage Gifting Works

• Lower valuations: Before profitability or significant growth, the company’s appraised value is lower, allowing you to transfer more ownership within your exemption.
• Leverage through discounts: Minority interests and lack of marketability often qualify for valuation discounts between 20–35%, further increasing the amount transferred tax-free.
• Future appreciation out of the estate: Once gifted, all post-transfer growth belongs to the recipients (or trusts), avoiding estate tax.

Best Structures for Gifting

1. Direct Gifts to Individuals. Simple but offers no asset protection or long-term control.
2. Gifts to Irrevocable Trusts. Allows you to set terms for distributions, protect assets from creditors/divorce, and integrate GST tax planning.
3. Gifts of Family Limited Partnerships (FLPs) or LLCs. Consolidates management, enables discounting, and allows gradual gifting of partnership/LLC units.
4. Recapitalized Businesses. Business entities can be recapitalized to create voting and non-voting interests, effectively separating the management from the economics of the business.

Timing Considerations

• Before a capital raise or major contract win. These events can materially increase valuation.
• Before a sale process starts. Once an LOI is signed, IRS scrutiny increases, and discounts may be harder to justify.
• When business performance is temporarily depressed. Downturn valuations can be gifting opportunities.

Example

Owner of a fast-growing tech company:

• Current pre-money valuation: $20M.
• Gifts a 30% non-voting interest to an irrevocable trust for children.
• 30% stake valued at $6M; 30% discount for minority/marketability = $4.2M gift tax value.
• Uses $4.2M of lifetime exemption; when company sells five years later for $100M, trust stake is worth $30M—all outside the estate.

Key Takeaways

• Early-stage gifting isn’t about giving away control. With the right structure, you retain operational authority.
• Discounts and low valuations are the most powerful tools for leveraging the $15M per person exemption.
• Coordinating with an appraiser, CPA, and estate attorney is essential.

Next in the series: How Intentionally Defective Grantor Trusts (IDGTs) can “freeze” estate value while shifting all future growth to your heirs.