The Attorney Conversation With the Shortest Shelf Life

The Coordination Series · Part 3 of 5

Estate-planning moves, such as gifting shares into a trust or restructuring ownership between generations, are most efficient at today’s valuation. Every year of growth without pre-sale planning raises their tax cost, and once a sale is under negotiation, the window may close altogether.

This is arithmetic, not preference. Whether it’s a discounted gift of minority interests into a trust, a grantor retained annuity trust (GRAT), or a family limited partnership, these structures are valued as of the transfer date, so some or all of the growth after the transfer happens outside the owner’s taxable estate. Funding a structure earlier, at a lower valuation, allows more future appreciation to pass to the owner’s family and other beneficiaries. If an owner waits until a buyer is circling, and the valuation is documented in a letter of intent (LOI), the same structure may remove far less from the estate, or may no longer make sense at all.

Two Owners, Two Timelines:

Consider two owners. One owner starts thinking about estate planning once a buyer is at the table. By then, the valuation is likely to be anchored to whatever the buyer has said the business is worth, with a deal in motion to prove it. The window to use a lower number has largely closed. Whatever pre-sale estate planning gets done at this point is more expensive, more rushed, and in some cases not available at all.

The other owner had this conversation years earlier, back when the business was worth a fraction of what a buyer will eventually pay. Shares moved into a trust at that lower value, the growth happened outside the estate, and by the time a sale is real, the most time-sensitive planning is already behind them.

The difference between these two owners isn’t how much estate planning they eventually did. It’s whether they did any of it before a number existed for anyone to negotiate over.

What an Estate Attorney Is Actually Racing

An estate-planning attorney’s best moves are most effective before a deal is in motion. The M&A advisor and M&A counsel are working to protect the valuation in the LOI and racing against the exclusivity clock. The estate attorney is racing against the rising valuation itself, and that clock starts running the moment a business starts growing, not the moment the owner decides to sell.

As an M&A advisor, BPCA can offer a market-based view of what the business is worth today and where that value may be headed over the next several years, based on the owner’s growth plans. While that’s not a qualified independent appraisal that meets IRS requirements, it’s a great starting point to for the owner to talk with an estate attorney and valuation firm. Sometimes an owner’s existing CPA offers the appraisal service, and when they don’t, we can introduce a firm that does.

For owners whose estates may exceed the federal or state exemption, pre-sale estate planning can protect future growth from being taxed in the owner’s estate, and doing it early is usually the most efficient move. But it isn’t the only estate planning lever, and for some owners it won’t happen. Family dynamics are unsettled, the timing never feels right, or rapid growth in a steady business consumes their attention. When that’s the case, there is still real value to preserve by structuring the deal with tax efficiency in mind and by using post-close estate planning vehicles. Either way, tax and wealth planning shouldn’t be siloed. That’s the topic of our next piece.

Next: Tax and Wealth Planning Are One Conversation, Not Two.