Selling your business is a major milestone that can change your financial life almost overnight. Assets that were once in a single company may suddenly become liquid, diversified, and ready for reinvestment. And your old estate plan? It may no longer protect what you’ve built.
Without an estate planning update, your hard-earned success could face significant estate taxes — currently 40% on assets above the federal exemption. Fortunately, with the right planning strategy, much of that exposure can be reduced or even eliminated. In this article, we outline common wealth transfer strategies you can use while managing estate tax risk. Here’s how to protect your legacy and make sure your wealth is transferred as you intended.
Immediate planning moves
A practical first step toward tax mitigation is reviewing your estate planning documents, including your will and durable powers of attorney. After a business sale, these documents need to account for your new level of liquidity and long-term liquidity management. Therefore, they should reflect your updated asset mix, current goals, trust funding, and how you want your wealth transferred to the next generation.
Depending on where you live, a revocable trust may also be appropriate. Unlike a Will, which goes through probate, a Revocable Trust allows for a private, seamless transfer of assets and gives you total control during your lifetime.
Understanding the “Sunset”
Current federal law provides a lifetime exemption for estate and gift taxes. Individuals can transfer assets up to this limit tax-free, but amounts above the exemption are taxed at 40%.
While the 2017 Tax Cuts and Jobs Act was scheduled to reduce the federal exemption on January 1, 2026, recent legislation removed that “sunset” provision. Instead, the exemption increased to $15 million per person ($30 million for married couples), annually adjusted for inflation.
The annual gift tax exclusion remains at $19,000 per recipient.
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Gifting strategies
Annual exclusion gifts let you transfer cash or assets each year without triggering a gift tax or reducing your lifetime exemption.
These gifts can add up over time. For example, a married couple making annual gifts to children and grandchildren can transfer hundreds of thousands of dollars within just a few years. Annual exclusion gifts can include cash, stocks, bonds, and real estate or other liquid assets, and be made through irrevocable trusts to better manage transferred assets.
Spousal Lifetime Access Trust (SLAT)
A SLAT allows you to transfer assets into an irrevocable trust now, allowing your spouse to receive distributions later, if needed.
When structured properly, couples may establish two SLATs, one for each spouse, allowing them to use both exemptions while retaining financial flexibility. Income generated by the trust is typically taxed to the couple, which further reduces their taxable estate over time.
Section 529 Qualified Tuition Program
A 529 plan is a tax-advantaged investment account designed to encourage saving for future education costs. Contributions grow tax-deferred, and withdrawals are tax-free when used for qualified expenses.
Because 529 plans allow you to change the beneficiary to a member of the family without triggering a taxable gift, you can use one large account as a multi-generational legacy fund. You can also frontload up to five years of gifts in a single year, making it a flexible way to transfer wealth.
Irrevocable Life Insurance Trust (ILIT)
Life insurance is often used to provide cash to pay estate taxes. However, if you own the policy yourself, the payout is taxed as part of your estate. By placing the policy in an ILIT, the proceeds pass to your heirs tax-free.
Charitable Remainder Trusts (CRT)
Want to support a cause but still need a revenue stream? A CRT provides you with an income for a period of years or life with the remaining assets going to your chosen charity. This can provide an immediate tax deduction and help reduce the size of your taxable estate.
Donor-Advised Fund (DAF)
DAFs allow you to take an immediate charitable deduction while directing how the money is invested or distributed over time. Contributions are irrevocable, but you and your successors can retain advisory privileges, making DAFs a flexible long-term giving tool.
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Long-term protection
A business sale can transform your financial life, but without proper planning, estate taxes and asset vulnerabilities can erode that success. With the right strategy, asset protection trusts, and well-structured charitable strategies, you can preserve your wealth, support your long-term goals, and make sure your assets are transferred as intended.
Need help with your estate plan after a liquidity event? Hatley Law Group has extensive experience helping high-net-worth individuals and families navigate complex estate planning decisions. Contact us to start building your family legacy planning today!
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