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

Written by Ryan Anderson, Sr. Partner and Private Wealth Advisor, and Mike Bleck, Partner and Sr. Estate Planning Advisor 

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.