We are exactly five years away from our target exit date and want to minimize our eventual tax bill. How do we align our personal estate planning and trust structures with our business operations now so we do not lose a massive portion of our proceeds to capital gains taxes?

Question

Tyler Smith · Accepted Answer

Building a highly valuable business is pointless if you lose forty percent of the proceeds to state and federal taxes at the closing table. If your target exit is five years away, you have the perfect window to implement sophisticated estate planning strategies that require time to execute legally and operationally.

Your first step is to consult with a specialized trust and estates attorney who works with business owners. You must evaluate options like grantor retained annuity trusts or family limited partnerships. By transferring non-voting shares of your business into these trusts today, when the valuation is lower, you lock in the gift tax value. All the future growth of the business over the next five years will accumulate inside the trust, completely free of estate taxes.

Five years also gives you enough runway to address your corporate structure. If you are operating as an S Corporation or a C Corporation, you may need to restructure to qualify for the Qualified Small Business Stock exemption, which can potentially eliminate federal capital gains taxes on up to ten million dollars of your sale proceeds.

Do not wait until you have a signed letter of intent to think about taxes. At that point, the Internal Revenue Service views the transaction as a done deal, and your options for tax mitigation disappear. Start restructuring your equity and trusts now, and run your business through your EOS framework to ensure your operational goals align with your estate planning milestones.