How One Family Approached a $50 Million Estate Transfer — A Case Study in Strategic Planning

How early, coordinated estate planning helped one family address a significant tax exposure — an illustrative example

$50M Est. Transferred Estate Value Outside Taxable Estate*

$20M Est. Federal Tax Exposure Avoided Based on Applicable Tax Rate*

$4M Gift Exclusion Used Of $15M Available

Client Background

Our client was a successful operator in the quick-service restaurant (QSR) industry, having built a substantial ownership stake across multiple franchise locations over several decades. As the business grew in value, so did a looming concern: without a proactive estate plan, a significant portion of that wealth would be lost to federal estate taxes upon the owner’s passing.

Like many high-net-worth business owners, the client had accumulated illiquid, privately-held shares — assets that are difficult to value and challenging to transfer. The challenge was to move wealth to the next generation efficiently, before the business appreciated further and before tax exposure became overly burdensome.

Without action, the family faced a multi-million dollar federal estate tax bill at the owner’s passing

The Strategy: Irrevocable Trust with Leveraged Discounts

Working with the client’s advisory team — including estate planning attorneys, a qualified business appraiser, and tax advisors — our wealth management team helped coordinate a multi-step estate transfer strategy centered on an irrevocable trust, with the owner’s spouse and children named as beneficiaries. This type of approach relies heavily on proper legal structuring, supportable valuation, and compliance with applicable IRS rules. The approach in this case took advantage of two tools:

1.  Debt-Adjusted Business Valuation

At the time of the transaction, the business carried substantial debt. Under IRS valuation rules, the net value of the business — equity minus liabilities — forms the taxable basis for gift and estate purposes. By executing the transfer when debt levels were elevated, the effective taxable value of the transferred assets was materially reduced. It is important to note that valuations of this type require support from a qualified, independent appraiser and must be defensible under IRS scrutiny.

2.  Minority Interest & Illiquidity Discounts

Because the transferred shares represented a minority ownership stake in a privately-held, illiquid business, the IRS permits a valuation discount — in this case up to 35% below net business value. This discount reflects the real-world reality that a minority interest in a private company commands a lower market price than a controlling interest. The availability and magnitude of such discounts varies by situation and must be established through qualified appraisal and legal review.

The Transaction

The ownership transfer to the irrevocable trust was executed in two distinct steps to optimize the use of the federal lifetime gift tax exclusion:

• A portion of the shares were gifted directly into the trust, utilizing a calculated portion of the owner’s lifetime gift exclusion.
• The remaining shares were sold to the trust in an installment sale structure, allowing further transfer of value outside of the gift exclusion framework.

By combining both techniques, the coordinated advisory team was able to help move a large block of equity into the irrevocable trust while consuming only $4 million of the owner’s $15 million federal lifetime gift exclusion — preserving over $11 million in exclusion capacity for future gifting.

The Outcome

Approximately four years after the trust was established, the QSR business was sold. The shares held inside the irrevocable trust — now outside of the owner’s taxable estate — were worth $50 million net of any remaining debt obligations.

Because those assets had been transferred prior to the sale and appreciation, the $50 million was not subject to federal estate tax at the owner’s death. The result:

• $50 million transferred to the family, federally tax-free
• $20 million in federal estate taxes saved
• Only $4 million of the $15 million lifetime gift exclusion consumed
• $11 million in remaining gift exclusion available for future transfers

In this case, early and coordinated estate planning helped this family preserve an estimated $20 million in wealth that could otherwise have been subject to federal estate tax.

Key Takeaways for High-Net-Worth Business Owners

• Timing matters. Business value fluctuates — in some situations, transferring assets when valuations are lower (due to debt levels or market conditions) may reduce the taxable value of the transfer.
• Illiquidity may be a factor. In some cases, privately-held, minority interests may qualify for valuation discounts under applicable IRS rules.
• Early action is worth considering. Depending on the facts, post-transfer growth may accrue inside the trust, outside of the taxable estate. The potential benefit of acting earlier rather than later is a factor worth discussing with your advisory team.
• Gift exclusions are finite and subject to change. The federal lifetime gift exclusion may represent a planning opportunity, but its availability, amount, and treatment under future tax law are not guaranteed.

*Results reflect a specific client situation and are not representative of all client experiences. Figures shown are estimates based on facts and circumstances applicable at the time of the transaction.

Case studies presented are not indicative of all client experiences with Honarc Wealth. Each client has unique circumstances, and the case studies presented are intended for illustrative purposes only. Outcomes are highly dependent on individual factors, including timing, valuation, and applicable tax laws. These examples should not be interpreted as a guarantee of future results or success.

This material was prepared with the assistance of AI. All content has been reviewed, edited, and approved by Honarc Wealth prior to use.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.

Honarc Wealth and its representatives do not provide tax or legal advice. Tax-law is subject to frequent change; therefore, it is important to coordinate with your tax advisor for the latest IRS rulings and specific tax advice, prior to undertaking an investment plan. Any tax or legal information provided here is merely a summary of our understanding and interpretation of some of the current income tax regulations and is not exhaustive. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation.

Advisory services offered through NewEdge Advisors, LLC, a registered investment adviser.