Integrated Wealth planning
Liquidity & Career Transition
Pre-Liquidity Gifting of Private Company Equity
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Most clients holding meaningful equity compensation already feel the urge to give some of it away. Family, charity, a legacy that outlives the position. It shows up in nearly every plan we build.
The problem is when that conversation happens. By the time a client asks whether they should be gifting shares, the window is usually closed. The question arrives after the S-1 is filed, after the tender offer prices, after a colleague mentions what their attorney set up two years ago. At that point the conversation is retrospective, and the answer is usually yes, they should have.
That makes this a proactive obligation rather than a responsive one. The advisor who waits for the client to raise gifting will always be having the conversation after the event that made it expensive.
The better question comes earlier and is harder to answer: can this client move equity out of their estate before the value gets locked in, and if so, what has to happen first?
That question sits between two practices. The financial advisor sees the position, the lot detail, and the valuation curve. The estate planning attorney sees what can legally move, what receives it, and whether it survives review. Each can answer half. The failures here are almost never analytical. They are coordination failures, and they become permanent at the liquidity event.
A client walks into your office with an equity statement…No, this isn’t the start of a joke.
They want to move some of it into a trust for their kids before the company goes public. Reasonable request, good instinct, right timing.
Looking at the statement together, you see unvested restricted stock units, thousands of unexercised options, and finally the quantity of owned shares. By the time you work through what is actually transferable, the giftable number is a fraction of the total on the page. What is left carries a right of first refusal they have never read.
This is the first conversation, and almost every gifting discussion skips it on the way to talking about structures.
The word that governs everything here is property. A gift is a transfer of property, so the client has to own the thing before they can give it away. Equity compensation spends most of its life not yet being property. An RSU is a promise to deliver. An option is a right to buy. Neither is a thing the client owns until an event converts it into shares. What can be gifted is whatever has already crossed that line.
Most of the statement has not. RSUs, single trigger or double, are a promise to deliver shares later. No property until delivery, nothing to transfer. Incentive stock options are nontransferable by statute, which is not a drafting choice and has no workaround that moves value out of the estate. Transfer to anyone else during life and it stops being an ISO. Nonqualified options are transferable only where the plan expressly permits, and most plans do not bother. Even where allowed, valuing an unexercised option for gift tax purposes rarely delivers the leverage the client came for. None of it is property yet, and almost none of it can move.
What survives is the working set: founder stock, restricted stock awards, shares acquired through exercise and held, shares purchased outright, and early-exercised shares. Restricted and early-exercised shares are owned from day one, but until they vest they usually carry a company repurchase right, and the plan typically blocks transfers. For most clients it is the smallest column on the statement, and the only one that matters here.
One trap sits inside it. ISO shares carry holding period requirements, two years from grant and one year from exercise, and a transfer before both periods are satisfied is a disqualifying disposition. Whether a transfer to a grantor trust counts as a disposition is a question for counsel.
That last category on the list is worth pausing on, because it is the one the client controls. An early exercise makes the client the owner of the shares before they vest. For nonqualified options and restricted stock, a timely 83(b) election moves the tax event to the date the shares are received and starts the capital-gains holding period then. ISOs work differently. The 83(b) election is effective only for AMT purposes, not regular income tax. The §422 periods begin on the early exercise date, so a qualifying disposition becomes possible sooner, but on a disqualifying disposition the capital gains holding period is measured from the vesting date. Either way, the decision gets made years before anyone says the word gifting, usually for reasons that have nothing to do with estate planning, and it quietly determines whether this door is open at all.
Which is the point. By the time a client asks about gifting, most of the variables have been set by decisions nobody framed as estate planning at the time. Raise it with the clients who have not asked, because they are the ones with the most room left.
Everything above describes what the tax code permits. The company decides what actually happens.
Private company stock plans and shareholder agreements routinely prohibit transfers to outside parties, including trusts, without company consent, and early-exercised shares often carry plan-level restrictions on top. Consent is discretionary. A company preparing for a liquidity event is managing its cap table, and adding holders of record is rarely something it wants to do on a shareholder's timeline.
Right of first refusal provisions add a second gate. Even where a transfer is permitted, the company or its investors may have the right to purchase the shares first or to approve the transferee. A ROFR can introduce delay, uncertainty about whether the transfer completes at all, and in some cases ends the strategy.
Blackout windows add a third. As a company approaches a liquidity event, insiders are frequently restricted from any transfer, gifts included. These windows tighten precisely when the planning opportunity is most valuable.
None of this lives in the tax code. It lives in documents the client signed years ago, and it gets checked early and again before execution.
The advisor produces the award inventory and identifies which lots are property. Counsel reads the governing documents and determines whether those lots can move. The inventory tells counsel which documents matter, and neither answer stands on its own.
For the last seven years, the reason to act was a date. The 2017 Tax Cuts and Jobs Act had doubled the federal exemption with a sunset scheduled for the end of 2025, and nearly every gifting conversation was organized around getting ahead of that deadline.
That deadline is gone. The One Big Beautiful Bill Act set the federal exemption at $15 million per person for 2026, $30 million for a married couple, indexed for inflation beginning in 2027, with no sunset provision. Lowering it would require an act of Congress, not the passage of time.
External pressure came off federally, which is worth exactly one deep breath. For a client holding pre-liquidity equity, the statutory deadline was never the binding one, so nothing about their situation improved.
The states are a different story. A dozen states and D.C. still levy their own estate tax, most with exemptions well below $15 million. For clients in those states, the pressure never eased at all. A client well under the federal exemption can still face a meaningful state estate tax, and in most of those states, appreciation moved out before the liquidity event is appreciation the state never reaches.
The statutory deadline is gone, and legislative risk is risk, not a date. The valuation deadline is set by the company and its investors. It arrives when enterprise value resets, which is out of the client’s control. The implementation deadline sits earlier than that, because the work takes months. Congress removed the only clock the client was watching. It did not remove the two that actually govern, and only one of those is inside anyone's control.
Exemption is consumed at what the shares are worth on the day they move, not what they are worth later. That is the entire opportunity. A share valued at four dollars today and forty at the IPO uses four dollars of exemption either way, as long as the client moved it while it was worth four.
This is not free. The transfer-date value consumes exemption above the annual exclusion, and transferred shares keep the client's basis instead of getting a step-up at death. That is usually a good trade, since estate tax arrives at death while capital gains tax arrives only if and when the shares are later sold.Either way, the same shares cost dramatically more to move after the reset than before.
Pre-IPO and pre-lockup-expiration get discussed together as if they were the same opportunity. They are not close.
The wide window is pre-IPO. No market price exists and a gift tax valuation (separate from the 409A, which governs option pricing) can support meaningful discounts for lack of marketability and lack of control.. This is where the leverage lives.
The narrow window is the post-IPO lockup. There is a real discount here, which is why the strategy gets recommended, but it is a fraction of what the pre-IPO discount delivers. A quoted public price now exists, and the restriction is short, known, and expiring on a date certain, which makes any discount harder to support. There is also a real possibility the transfer is barred outright, since underwriter lockup agreements frequently restrict gifts, and a client at this stage may carry Section 16 obligations on top.
So the wide window closes at the IPO, not at lockup expiration. Most of the leverage is gone the moment the stock is public, which means the events worth watching all sit earlier: a priced round at a step-up, a signed term sheet, an S-1 filing, a tender offer, or secondary trading active enough to establish an arm's length price.
The window closes on an announcement. The work does not move that fast. Client education on the vehicles and whether any of them fit. Selection against family circumstances, objectives, and access needs. Drafting and execution with counsel. Funding, which for private shares means company consent and possibly a ROFR waiting period.
Months, against a window that can close overnight. A client who opens this conversation while the S-1 is being drafted has already lost, and a permanent exemption does not help.
Everything above narrows the structuring conversation before it starts. An illiquid asset, a valuation that resets on an event nobody controls, a compressed timeline, and a client whose wealth stage is unresolved because paper value may never become real.
The advisor sees the curve first, through grant activity, secondary offers, and the client's own read on where the company is headed. Counsel knows how long the implementation calendar runs. The window is only visible when both sit on the same page.
A structure that can hold illiquid, restricted, non-income-producing stock through a liquidity event narrows the available options quickly. Two trust structures stand out and do most of the heavy lifting: the Grantor Retained Annuity Trust (GRAT) and the Intentionally Defective Grantor Trust (IDGT).
GRATs work by having the grantor transfer an asset into an irrevocable trust while retaining the right to annuity payments back from the trust for a set term. At the end of the term, assuming the grantor survives the term, whatever value remains above the IRS's assumed "hurdle rate" (the Section 7520 rate) passes to the named beneficiaries free of gift or estate tax. Structured as a "zeroed-out" GRAT, the initial transfer can use little to none of the grantor's lifetime exemption, making it a low-risk way to bet on appreciation: if the stock underperforms, the shares simply come back to the grantor through the annuity payments, with no exemption wasted.
For a volatile, high-growth asset, exactly the profile of pre-IPO shares or early-exercised ISOs/NQSOs, a GRAT lets the grantor capture the upside of a future liquidity event while risking very little if the bet doesn't pay off.
IDGTs take a different approach. The trust is deliberately structured so that its assets sit outside the grantor’s estate, while the grantor is still treated as the owner for income tax purposes. Assets can be transferred in by gift or, more commonly for larger positions, sold to the trust for fair market value in exchange for an interest-bearing promissory note. Because the grantor is treated as selling to themselves for income tax purposes, the sale doesn't trigger capital gains. So long as the note carries at least the Applicable Federal Rate (AFR), the sale isn't a gift at all. The note is worth the full value of the shares. And a low rate like the AFR matters because it sets the hurdle: appreciation above that rate builds up in the trust, outside the estate, while the note stays in the estate, frozen at the value on the day of the sale.
For restricted stock or early-exercised shares specifically, doing this before a lockup expiration or IPO priced the shares at fair market value is what makes the strategy powerful: the note or gift is valued using the lower, restricted-share price, while all future public-market appreciation accrues outside the estate.
Because these shares can't be sold on the open market the way public stock can, their fair market value for gift and estate tax purposes is typically reduced through valuation discounts:
Courts have weighed in on how these discounts should be assessed. Factors commonly considered include restrictions on transfer, the company's financial condition and dividend policy, the size of the block being transferred, and how much control (if any) comes with it. Because there's no single formula, advisors typically lean on restricted-stock studies, pre-IPO discount studies, option-pricing models, and other quantitative frameworks then adjust based on the specific facts of the company and the holding.
The practical upshot: stacking a marketability discount with a lack-of-control discount, applied to shares valued before a liquidity event, can meaningfully shrink the reported value of a large gift stretching an owner’s exemption further than a straightforward cash gift ever could. None of this matters if the transfer cannot happen. The company-level restrictions covered earlier decide that, and they get confirmed before any of this modeling is worth doing.
Executing strategy like this well requires seeing the whole picture, not just the shares being gifted, but everything else on a client's balance sheet, how that picture evolves over time, and which order of operations actually keeps the gifting generation financially secure. Grantd and Vanilla are both built to support exactly that kind of planning.
Grantd gives the advisor visibility into the client’s equity awards. Every grant a client holds, lot by lot, with vesting schedules, concentration analysis, withholding gaps, and scenario modeling with tax insight.It follows an award through its whole life, from a promise of future delivery, to the compensation event, to an asset the client owns outright. In the planning phase that is what turns an abstract position into specifics both parties can work from: what the client owns now, what they will own later, and on what schedule.
Vanilla gives the advisor visibility into the estate the client is building, and what happens to it under different decisions.
Vanilla and Grantd have tools that help fit together different pieces of the same puzzle, and every client and family assembles it differently. Used hand in hand, they turn what can feel abstract and high-stakes into something a client can see, understand, and act on with confidence while the window is still open.
Gifting concentrated stock or equity compensation ahead of a liquidity event is one of the more effective ways to move significant future appreciation out of a taxable estate, but it depends on getting several things right at once. Acting before the valuation resets. Choosing a planning technique (gifting, GRAT, IDGT) that fits the situation. Supporting the valuation with an appraisal that holds up. Clearing the company-level hurdles that can stop a transfer in its tracks.
The window between "shares are restricted and undervalued" and "shares are liquid and fully valued" can close quickly, this is planning that benefits from starting well before a company's liquidity event is on the calendar, not after.
This article is for general educational purposes and does not constitute tax, legal, or financial advice. Individuals should consult a qualified estate planning attorney, tax advisor, or valuation professional before acting on any of the strategies described.
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