Why Business Succession Starts With a Lifetime Gift

Article | July 08, 2025

Authored by Your Firm LLC

Across the Mid-Atlantic, thousands of privately held companies are approaching a crossroads. Over the next two years many founders will look to transition leadership just as the federal estate and gift-tax exemption—$12.92 million in 2023—shrinks by roughly half on January 1, 2026. If owners wait until death to transfer stock, as most still do, the portion of the estate that exceeds the reduced exemption could face a 40 percent tax. “The sunset will erase one of the most generous tax environments any entrepreneur has ever enjoyed,” says Christopher Lemley, CPA and Tax Director at MBN & Company. “Using that window while it is still open is not simply a tax move; it is a succession imperative.”

The Hidden Cost of Waiting

Gift and estate taxes operate on a unified credit. Every dollar that passes to heirs during life reduces the exemption available at death, but gifts also remove future appreciation from the estate. For a closely held company growing at, say, eight percent a year, compounding alone can double the taxable value in less than a decade. The mathematics favor action now, not later. And yet founders hesitate, often out of fear that gifting equity means surrendering control. In practice modern estate-planning tools allow owners to separate economic value from voting power so leadership continuity is never compromised.

Discounts That Disappear in Probate

Closely held shares gifted today can be valued at substantial discounts—sometimes 25 to 35 percent—because minority positions lack marketability and control. Those same shares reported on an estate-tax return after death must be valued at their full pro-rata worth, eliminating the discount. Timing therefore delivers a double benefit: the discounted valuation reduces the amount of exemption consumed, and the future growth of the enterprise accrues to younger generations outside the taxable estate.

The opportunity cost of delay became clear for one manufacturing client MBN & Company advised last year. By transferring a 30 percent non-voting stake while the business was in a cyclical trough, the founder used just $3 million of exemption to remove nearly $5 million of asset value from his estate. A subsequent rebound in demand has lifted that stake to $7 million—growth that would have faced estate tax if not for the well-timed gift.

Trusts That Keep Founders at the Helm

The mechanics of gifting need not clash with governance. Grantor Retained Annuity Trusts (GRATs), Spousal Lifetime Access Trusts (SLATs) and Intentionally Defective Grantor Trusts (IDGTs) each enable owners to pass appreciation to heirs while retaining either cash flow or voting rights. A properly structured GRAT, for example, pays the founder a fixed annuity for a set term; any growth above a modest IRS hurdle rate passes to beneficiaries with little or no gift-tax cost. “Trusts are essentially throttles,” says Lynn Eller, CPA and partner in MBN & Company’s Private Client practice. “They let founders decide how fast to shift economic benefit to the next generation without relinquishing strategic direction.”

Different structures solve different problems. A SLAT can provide the founder’s spouse with income while ensuring that business interests remain outside both estates. An IDGT, meanwhile, leaves income-tax liability with the grantor, allowing trust assets to compound free of tax drag—an under-appreciated boon when the business is on a steep growth curve. Because every family enterprise is unique, MBN & Company assembles multi-disciplinary teams—tax advisors, valuation specialists, outsourced CFOs—to align trust design with governance documents, buy-sell provisions and cash-flow models.

The Human Equation

Lifetime gifting is only effective when the people who receive ownership are prepared to wield it. That means updating shareholder agreements, mentoring rising executives and stress-testing corporate liquidity. Can the company redeem shares if a child decides to exit? Will there be cash to pay estate tax on any interests the founder still holds in 2026? These questions belong in the boardroom long before documents reach the lawyer’s desk. “Tax is the catalyst, but leadership development is the outcome,” Mr. Lemley notes. “If equity changes hands without a management runway, the plan fails no matter how elegant the tax savings look on paper.”

A Two-Year Playbook

Owners who act in 2024 and 2025 can navigate two full calendar cycles of annual exclusion—$17,000 per recipient this year and $18,000 next—stacked on top of the lifetime exemption. By combining discounted minority gifts, trust structures and the annual exclusion, a married couple could shift tens of millions of dollars of future appreciation out of their estates before the law changes. Each gift requires an accurate valuation and a timely Form 709 filing; sloppy reporting can jeopardize discounts years down the road when an estate is audited. MBN & Company’s valuation team collaborates with its tax group to document methodology in a way that anticipates IRS scrutiny.

The Risk of Legislative Whiplash

Could Congress extend the current exemption? Possibly. Should that possibility dictate strategy? Probably not. “Waiting for certainty is the most expensive course of action,” Ms. Eller warns. “History shows that when Washington raises revenue, transfer taxes are a convenient lever. Business owners who think the sunset might be postponed should ask themselves what downside exists in moving sooner. There is none.”

Moving Forward—Today

The convergence of demographic change and tax policy creates a narrow window. Founders who integrate lifetime gifting into succession planning stand to protect family wealth, fortify leadership and position their companies for uninterrupted growth. Those who defer the conversation may find themselves negotiating with the IRS rather than mentoring their successors.

MBN & Company’s mission is to move clients forward. Our professionals guide owners through valuation analysis, trust architecture, gift-tax compliance and, most importantly, the human conversations that turn technical strategies into enduring legacies. The clock is running toward 2026, but decisive action now can transform a looming tax liability into an opportunity for long-term prosperity.