You're about to experience a life-changing financial event. An IPO. An acquisition. A tender offer.
And you're starting to think beyond just yourself.
Maybe you want to set up your children for financial security. Maybe you're thinking about grandchildren who aren't even born yet. Or maybe you simply want to ensure that the wealth you're creating doesn't get destroyed by estate taxes a generation from now.
Here's what most people don't realize:some of the most powerful estate planning and gifting strategies only work if you execute them before the liquidity event.
Gift shares before the IPO, and you can potentially lock in a low valuation while moving future appreciation out of your taxable estate. Wait until after, and you've missed the window—which may increase the future tax cost to your family.
In our charitable giving post, we talked about using your liquidity event to support causes you care about. Now we're covering how to use that same moment to support your family—in ways that may compound for generations.
Why Liquidity Events Create Estate Planning Leverage
When your company is still private, your equity has a certain fair market value—based on the 409A valuation or recent funding rounds.
But once the IPO happens or the acquisition closes, that same equity might be worth significantly more.
Here's the opportunity: if you gift shares before the liquidity event, you can transfer them at the lower pre-event valuation.
All the future appreciation—everything the shares gain after the gift—generally occurs outside your taxable estate.
The Math of Pre-Event Gifting
Let's say you hold private company stock currently valued at $2 million (based on 409A). Your company is approaching an IPO, and you expect the post-IPO value to be around $10 million.
Gift after the IPO:
- You transfer $10 million in value
- That $10 million counts against your lifetime gift and estate tax exemption
- Future appreciation beyond $10 million happens outside your estate
Gift before the IPO:
- You transfer $2 million in value (using only $2 million of your exemption)
- The stock appreciates to $10 million post-IPO—but that growth happens outside your estate
- If it continues growing to $15 million, all of that appreciation ($13 million total growth) is outside your estate
The timing difference? You've used less of your lifetime exemption by gifting earlier and moved significantly more appreciation out of your taxable estate. Actual outcomes depend on future valuation and individual circumstances.
The Current Estate Tax Landscape (2025)
Understanding the current rules is critical because they can change over time.
Lifetime Gift and Estate Tax Exemption: For 2025, each individual has a $13.99 million lifetime exemption. Married couples effectively have $27.98 million combined.
This means you can gift or bequeath up to that amount without triggering federal gift or estate taxes.
Recent legislative changes:
In July 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, which:
- Made the increased exemption permanent (no sunset)
- Increased it to $15 million per person for 2026 ($30 million for couples)
- Provides for inflation adjustments going forward
As a result, the urgency around "use it before 2026" has been eliminated. However, for those with estates that may exceed even the new higher limits, proactive gifting during liquidity events can remain a meaningful wealth transfer strategy.
Annual Gift Exclusion: Separately from the lifetime exemption, you can gift up to $19,000 per person per year (2025) without using any of your lifetime exemption. Married couples can jointly gift $38,000 per person per year.
This can be useful for ongoing gifts, but it is typically insufficient on its own to move significant equity during a liquidity event.
Common Gifting Strategies to Consider
There's no one-size-fits-all approach. The appropriate strategy depends on your net worth, your goals, your family structure, and your relationship with your wealth.
Here are the most commonly used tools:
Outright Gifts
The simplest approach: you gift shares directly to your children, grandchildren, or other family members.
Pros:
- Simple and straightforward
- No ongoing trust administration
- Recipient has complete control
Cons:
- No asset protection for the recipient
- Loss of control over how the assets are used
- May be inappropriate for younger or financially inexperienced recipients
This works well for modest gifts or for adult children who you trust to manage the assets responsibly.
Intentionally Defective Grantor Trusts (IDGTs)
An IDGT is a trust that's treated as "owned" by you for income tax purposes, but not for estate tax purposes.
How it works:
- You create the trust and transfer assets (like pre-IPO stock) into it
- You pay income taxes on the trust's earnings—which allows the trust to grow faster
- The trust assets (and all future appreciation) are outside your estate
Why "defective"? The trust is intentionally structured so that you, not the trust, pay the income taxes. This is actually a benefit—you're essentially making additional tax-free gifts to the trust by paying its taxes.
When it makes sense:
- You want to move significant assets out of your estate
- You're comfortable with irrevocability
- You have sufficient other assets to pay your own living expenses and taxes
Spousal Lifetime Access Trusts (SLATs)
A SLAT is an irrevocable trust created for the benefit of your spouse (and potentially your children).
How it works:
- You gift assets to the trust
- Your spouse may receive distributions from the trust
- Because your spouse has access, you indirectly retain some benefit
- The assets are outside your estate
This strategy may be appropriate for couples seeking estate planning benefits while retaining indirect access, but it involves meaningful tradeoffs. .
The risks:
- If you divorce, your ex-spouse still has access to the trust
- If your spouse dies first, you lose the indirect access
- Once created, you can't easily undo it
This strategy works well for married couples who want the estate planning benefits of gifting but aren't ready to completely give up access to the assets.
Grantor Retained Annuity Trusts (GRATs)
A GRAT is a trust designed to pass appreciation to your heirs with limited gift tax consequences.
How it works:
- You transfer assets (like pre-IPO stock) to the trust for a fixed term (typically 2-5 years)
- You receive annual annuity payments from the trust
- At the end of the term, any remaining assets pass to your beneficiaries
- If the assets appreciate faster than the IRS assumed rate, the excess growth passes to your heirs gift-tax-free
When it makes sense:
- You expect the gifted assets to appreciate significantly
- You're comfortable with a defined term rather than giving up assets immediately
- You want to retain some income from the assets during the trust term
GRATs are commonly considered l for pre-IPO stock, where appreciation may exceed the IRS assumptions but outcomes are not guaranteed.
As we discussed in the ISO exercise post, timing matters enormously with equity compensation. The same principle applies here—the earlier you can gift equity (before major appreciation), the more effective these strategies may become.
529 Plans and Annual Exclusion Gifting
For education-focused gifting, 529 plans offer unique benefits.
529 "Superfunding": You can front-load five years of annual exclusion gifts into a 529 plan in a single year. For 2025, that means up to $95,000 per beneficiary (or $190,000 for married couples).
Benefits:
- Tax-free growth for qualified education expenses
- You maintain control over the account
- Can be changed to benefit different family members if needed
- Estate tax benefits (funds are outside your estate)
Limitation: California doesn't offer a state tax deduction for 529 contributions (unlike some other states). But the federal tax-free growth is still valuable.
Questions to Ask Before Gifting
Before you transfer any equity, you need to evaluate:
Can you afford to give this away? Just because you can gift doesn't mean you should. Make sure you've modeled your own financial independence first. You can't un-gift assets if you need them later.
Is your equity transferable? Many private companies restrict equity transfers before a liquidity event. Check your stock option agreement, your company's bylaws, and with your company's legal team before planning any gifts.
What's your likely estate tax exposure? If your net worth is well below the exemption amount, aggressive gifting may not be necessary. But if you're likely to exceed the exemption (especially after 2025 when it drops), proactive planning becomes critical.
How much control do you want to retain? Some strategies (like outright gifts) mean you lose all control. Others (like SLATs or GRATs) allow you to retain some level of access or income.
What's your family dynamic? Not every family is suited for complex trusts. If your children are young, financially inexperienced, or have substance abuse or creditor issues, trusts can provide protection. If your family is stable and mature, simpler approaches may work.
The Coordination Challenge
Estate planning during a liquidity event requires coordination across multiple advisors:
Estate Planning Attorney:
- Drafts and establishes trusts
- Ensures compliance with state and federal law
- Structures gifting strategies appropriately
CPA / Tax Advisor:
- Models the gift and estate tax implications
- Handles gift tax return filings
- Coordinates with income tax planning
Financial Advisor:
- Evaluates whether you can afford the gifts
- Stress-tests your financial plan with reduced assets
- Coordinates investment strategy for trust assets
Company Legal / HR:
- Confirms whether equity transfers are allowed
- Processes transfer paperwork
- Ensures compliance with company policies
The biggest mistakes we see? One advisor working in isolation, not knowing what the others are doing. An estate attorney creates a trust, but the CPA doesn't know to file a gift tax return. Or a financial plan assumes you're keeping all your equity, while you're simultaneously planning major gifts.
This is why integrated planning matters.
The Critical Timing Window
Here's what you need to understand: most estate planning strategies require execution before the liquidity event.
Once the IPO happens or the acquisition closes, you've locked in the higher valuation. You can still gift at that point—but you're using more of your lifetime exemption and capturing less growth outside your estate.
Pre-transaction gifting often requires:
- Company approval for equity transfers
- Qualified appraisals to establish fair market value
- Time to establish and fund trusts
- Coordination of gift tax returns
This isn't something you can do in a week. For complex strategies, you may need 60-90 days or more.
If your company is approaching a liquidity event, the time to start planning is now—not after the announcement.
How We Help
At Brickley Wealth Management, we help clients navigate estate planning during liquidity events by serving as the central coordinator:
- Financial modeling to determine what you can afford to gift while maintaining your own financial security
- Tax planning to optimize gift timing and structure (we provide CPA services or coordinate with your existing CPA)
- Coordination with estate attorneys to ensure trusts align with your financial plan
- Company liaison to handle equity transfer paperwork and approvals
- Ongoing trust administration if you need support managing trust assets after creation
Whether you're gifting $500,000 or $50 million, the principles are the same: plan early, coordinate across advisors, and make sure your wealth transfer strategy aligns with your values and your family's needs.
Thinking about estate planning during your liquidity event? We help clients coordinate gifting strategies across legal, tax, and financial planning to maximize family wealth transfer.
Next in this series: Post-Liquidity Tax Strategy—because once the shares are sold, you're facing the tax consequences and need a plan for what comes next.