Seize the Moment! As a business owner, you are constantly navigating complex decisions, especially in an uncertain economic climate. While your focus may be on operations and growth, now could be a uniquely opportune time to consider a strategic move that could significantly benefit your family and your legacy: gifting shares of your business.
Looming Sunset of the Enhanced Gift Tax Exemption
The most compelling reason to act sooner rather than later revolves around the current federal gift and estate tax exemption. The Tax Cuts and Jobs Act (TCJA) of 2017 significantly increased the lifetime exemption amount. For 2025, the exemption amount is $13.99 million per individual or $27.98 million for married couples.
This exemption is not permanent and is scheduled to “sunset” on December 31, 2025. Unless Congress takes action to extend it, the exemption will revert to pre-2018 levels —projected to be roughly half of the current amount, around $7.0 million per individual or $14.0 million for married couples, adjusted for inflation.
A core component of the “One, Big, Beautiful Bill” (i.e., the budget reconciliation legislation currently being debated in Congress) supported by President Donald Trump and House Republicans is making permanent the individual and estate tax cuts from the TCJA. However, it is unknown if the bill will become law in its current form. This means if you wait, you could lose the ability to transfer a significant portion of your wealth tax-free.
Maximizing Your Gift in a Volatile Market
Economic uncertainty, while challenging, can paradoxically create a favorable environment for gifting. When market conditions are volatile, the fair market value of businesses, particularly privately held ones, may be temporarily depressed.
Gifting shares when your business’s valuation is lower offers several advantages:
- Uses Less Exemption: By gifting at a lower valuation, you consume less of your lifetime gift tax exemption. This leaves more of your exemption available for future gifts or for your estate at the time of your death.
- Locks in Future Appreciation: The core benefit of gifting is that any future appreciation of the gifted asset occurs outside of your taxable estate. If your business is currently undervalued but expected to rebound when the economy stabilizes, gifting now means that subsequent growth is shielded from future estate taxes. Imagine gifting shares worth $X today that might be worth $3X or $5X in a few years – that growth passes to your heirs free of estate tax.
- Valuation Discounts: When gifting minority interests in privately held businesses, you can often apply valuation discounts for “lack of control” and “lack of marketability.” These discounts can further reduce the gift’s value for tax purposes, allowing you to transfer an even larger economic interest using less of your exemption.
Other Considerations
While tax benefits are a primary advantage, gifting shares can also be a valuable tool for:
- Succession Planning: Gifting can facilitate the gradual transfer of ownership and control to the next generation, ensuring a smooth transition for your business.
- Family Wealth Transfer: Gifting allows you to provide financial support to your heirs now, enabling them to benefit from both the assets and their future growth during your lifetime.
- Minimizing Overall Tax Liability: By strategically gifting, you can reduce both potential gift tax liabilities and future estate taxes, leading to significant overall tax savings for your family.
Act Now, Consult an Expert
The window of opportunity to take advantage of the current enhanced gift tax exemption is closing. If you are a business owner with substantial wealth, now is the time to explore whether gifting shares aligns with your financial and legacy goals.
It is crucial to work with experienced tax and estate planning professionals. They can help you:
- Determine the appropriate valuation of your business interests.
- Structure the gifts in a way that maximizes tax efficiency (e.g., using trusts).
- Ensure all legal and reporting requirements, including filing IRS Form 709 (Gift Tax Return), are met.
Do not let this unique opportunity pass you by. A proactive approach to gifting now could secure a more favorable financial future for your family and your business.
