Start with the money your family needs to keep
A buyer has approached your company, or a sale is becoming realistic. Moving some equity into a trust may be worth evaluating, but the first question is how much you can afford to transfer.
Separate your expected sale proceeds into three buckets: taxes and transaction costs, assets needed for your own financial security, and wealth you want to transfer to family. Model a delayed or failed sale as well as a successful closing. A plan that works only if the deal closes at the hoped-for price needs another look.
A SLAT and a GRAT solve different problems. One emphasizes a completed gift with possible access through a beneficiary spouse. The other retains a defined payment stream while seeking to transfer growth. Neither is a substitute for a personal liquidity plan.
SLAT vs. GRAT at a glance
Scroll across the table to compare both columns.
| Decision | SLAT | GRAT |
|---|---|---|
| Who can receive money during the trust term? | The beneficiary spouse and any other permitted beneficiaries, under the trust's terms. The donor is generally not a beneficiary. | The grantor receives the required annuity during the retained term. |
| How is gift-tax exemption used? | The taxable gift generally uses available exemption; exceeding it can create gift tax. | The taxable gift reflects the property transferred minus the value of the qualified retained annuity. Careful design may make that gift very small. |
| What is intended to reach family? | The transferred property and later growth, subject to permitted distributions and proper structure. | Property remaining after the annuity obligations are satisfied. There may be little or nothing left. |
| What creates a cash-flow challenge? | Giving away assets while retaining enough outside the trust for living costs and taxes. | Paying the annuity on schedule when the trust holds illiquid business equity. |
| What risk needs particular attention? | Loss of indirect access if the beneficiary spouse dies or the marriage ends; retained-benefit and reciprocal-trust concerns. | Investment performance, payment administration and the grantor's death during the retained term. |
| When is it worth discussing? | You are married, have exemption available and can commit assets to a long-term family trust. | You want to evaluate transferring appreciation while retaining scheduled payments and limiting the initial taxable gift. |
These are planning comparisons, not automatic tax results. The retained-interest valuation rules are in Internal Revenue Code § 2702.
A SLAT requires a real gift
A SLAT is an irrevocable trust created by one spouse for the other spouse and often descendants. The donor generally gives up personal access to the transferred assets. A trustee may make distributions to the beneficiary spouse if the document permits them, but that does not give the donor an enforceable right to the money.
Do not build the household budget around an assumption that the spouse will always receive distributions. The spouse's death can end that source of indirect access. Divorce can change beneficiary rights and the practical availability of trust assets; the result depends on the document and applicable law.
The donor's retained rights and actual conduct also matter. Keeping prohibited enjoyment or control can cause estate inclusion under Internal Revenue Code § 2036. A signed trust does not cure an arrangement in which the donor continues treating its assets as a personal account.
If both spouses want trusts, have counsel evaluate the reciprocal-trust doctrine. The Supreme Court's decision in United States v. Estate of Grace addresses interrelated arrangements that leave the spouses in substantially the same economic position as trusts for themselves. Different signing dates alone are not a reliable solution.
For the broader structure, see our SLAT planning guide for married couples.
A GRAT needs a workable payment plan
With a GRAT, you transfer assets while retaining a qualified annuity for a stated term. The gift-tax calculation deducts the actuarial value of that retained interest. A carefully structured GRAT can produce a very small taxable gift, but it still requires legal work, valuation and administration.
The retained annuity must be paid at least annually. A promissory note does not satisfy the payment requirement. An in-kind payment of business interests requires careful valuation and confirmation that the transfer is permitted. Review the qualified-annuity rules in Treasury Regulation § 25.2702-3.
For a business owner, the practical question is what pays the annuity if the company does not distribute cash and the expected sale slips. If a sale closes while the GRAT is operating, the proceeds remain subject to its payment obligations. The closing does not make all of that cash freely available to the family.
A GRAT seeks to leave value after the required payments. Strong performance may create a remainder; disappointing performance may leave none. If the grantor dies during the retained term, some or all of the trust property may be included in the grantor's estate under the retained-interest estate-tax regulations. Term length, health and liquidity belong in the same discussion.
The 2026 numbers: exemption and the GRAT rate
The federal basic estate-and-gift exclusion is $15 million per person for 2026, before accounting for prior taxable gifts and other applicable adjustments. Current law provides inflation adjustments after 2026. Older articles predicting a reduction when 2025 ended do not describe the current statute. See Internal Revenue Code § 2010 and the IRS Form 706 instructions.
That larger exclusion does not make every transfer worthwhile. Compare the family's projected estate, remaining exemption, expected appreciation and income-tax costs before committing assets.
For September 2026, the section 7520 valuation rate is 5.4%. This rate is used in valuing the retained annuity and remainder; it is not an investment forecast or a promised return. The applicable rate can change by month, so a later transfer needs a fresh calculation. Source: IRS Revenue Ruling 2026-17, Table 5.
A term sheet is a reason to review timing now
Do not treat an unsigned purchase agreement as permission to use an old, lower valuation. Gift-tax value is determined at the time of the transfer under the fair-market-value regulation. Current negotiations and transaction facts belong in the appraisal process.
Give estate counsel, company counsel and the appraiser the actual record: buyer communications, indications of interest, letters of intent, diligence status and anticipated approvals. A financing valuation or earlier appraisal is useful background, not an automatic answer to the value of the interest being given away.
Also check the shareholder or operating agreement, investor consents, transfer restrictions and the proposed trust's eligibility to hold the particular interest. Signing a trust document is only one step; ownership must be transferred properly.
There is no universal number of days before closing that makes a transfer effective for every purpose. Start with the current facts. Our founder pre-exit planning guide addresses the wider sequence.
Compare estate-tax savings with income-tax costs
Putting business equity into a SLAT or GRAT does not, by itself, erase capital gains when the business is sold. If you are treated as the owner under the grantor-trust rules, the income attributable to that portion generally remains yours for federal income-tax purposes.
Also evaluate basis. Assets given to an irrevocable grantor trust and excluded from the donor's estate do not receive a basis adjustment at death merely because the donor was treated as their income-tax owner. The IRS explains both principles in Revenue Ruling 2023-2.
Ask for a comparison of transferring assets, retaining them and using a smaller transfer. Include projected sale taxes, taxes during trust administration, estate exposure and the family's spending needs. A federal exclusion figure alone cannot answer which alternative leaves the family better off.
What to review before moving shares
Bring these items into a coordinated discussion with estate counsel, company counsel, your CPA and an appropriate valuation professional:
- Ownership: the capitalization table and the exact interests you own.
- Transfer rules: governing agreements, consent requirements and restrictions on trust ownership.
- Deal status: current proposals, signed documents, closing assumptions and any escrow or earnout.
- Value and basis: financial statements, prior valuations, acquisition records and tax basis.
- Family resources: assets outside the business, expected spending, prior gift-tax returns and existing trusts.
- Administration: proposed trustees, intended beneficiaries, payment funding and responsibility for filings.
Legacy Counsel's estate planning for founders before an exit connects the proposed transfer with your broader estate plan. Start with the family and transaction facts, then decide whether a SLAT, a GRAT or another approach deserves detailed modeling.
Frequently asked questions
Neither is universally better. A SLAT may fit a married donor who can make a substantial gift and wants the trust to benefit a spouse and family. A GRAT may fit a plan to transfer appreciation while retaining scheduled payments. Compare exemption use, family access, valuation, payment funding, mortality risk and taxes before choosing.
Possibly, but a letter of intent is a reason for prompt, fact-specific review. Counsel and the appraiser need the negotiations, commitments and remaining closing conditions. Do not assume an unsigned final agreement preserves an earlier valuation or creates a safe planning window.
Not automatically. Trust ownership and sale-tax treatment are separate questions. If the grantor is treated as the income-tax owner of the relevant trust assets, the associated income generally remains attributable to the grantor. Model sale taxes and ongoing tax obligations alongside any estate-planning benefit.
It can, but the annuity still needs timely payment. Evaluate cash reserves, expected distributions and any permitted in-kind payment using an appropriate valuation. A delayed sale does not suspend the obligation, and issuing a promissory note does not count as payment.