Why Standard Planning Isn't Enough Above $5M
A basic revocable living trust avoids probate. A simple irrevocable trust removes assets from your estate. But for business owners whose estates are growing toward — or beyond — the federal exemption, those tools leave enormous value on the table.
The strategies below are designed to transfer large amounts of wealth — sometimes tens of millions of dollars — while consuming minimal or zero gift and estate tax exemption. Each one exploits a different feature of the tax code. None of them are loopholes; they are each explicitly sanctioned by statute or IRS guidance.
The 2026 sunset makes timing critical: the current $13.99M per-person federal exemption is scheduled to drop to approximately $7M after December 31, 2025. Large transfers made before that deadline lock in today's higher exemption. Waiting costs real dollars.
IDGT — Intentionally Defective Grantor Trust
IDGT: The Business Owner's Favorite
The name sounds like a flaw — "defective" — but the defect is intentional and advantageous. An IDGT is:
- Irrevocable for estate tax purposes: Assets transferred to the IDGT leave your taxable estate permanently.
- A grantor trust for income tax purposes: You, as grantor, pay all income tax on earnings inside the trust. Under normal rules this would be a burden — but it is actually a tax-free gift to the trust beneficiaries, because the trust's assets grow without being eroded by income tax, and the income taxes you pay reduce your estate without using any gift tax exemption.
The power move — installment sale to an IDGT: You sell a business interest (LLC membership units, S-Corp stock) to the IDGT in exchange for a promissory note at the applicable federal rate (AFR). Because the trust is "defective" — treated as you for income tax — the sale produces no capital gains. The business interest appreciates inside the trust. Your estate holds only the note (fixed value). All appreciation above the AFR passes to heirs estate- and income-tax-free.
Ideal for: Business owners planning a sale within 3–7 years, pre-IPO equity, or any asset with high expected appreciation. A $3M business interest sold to an IDGT that later sells for $10M means $7M passes to heirs with zero estate or income tax on the growth.
GRAT — Grantor Retained Annuity Trust
GRAT: The Appreciation Transfer
A GRAT allows you to transfer the appreciation on assets while keeping the underlying value in your estate — and potentially consuming zero gift tax exemption.
- You transfer appreciating assets into the GRAT for a fixed term (typically 2–5 years).
- You receive annuity payments back from the GRAT during the term.
- Zeroed-out GRAT: The annuity is structured so that the present value of all payments equals the value of assets transferred, resulting in a taxable gift of approximately $0. At the end of the term, any value remaining in the trust — everything that grew above the §7520 hurdle rate — passes to heirs tax-free.
Best use: Stock options, private equity interests, real estate, or any asset you expect to significantly outperform the §7520 rate (currently 4–5%). A $2M asset that grows to $3.5M during the GRAT term transfers $1.5M in growth to your heirs with no gift tax and no exemption used.
Key risk: You must outlive the GRAT term. If you die during the term, the GRAT assets return to your estate. Shorter terms (2–3 years) reduce this mortality risk. Rolling GRATs — a series of short-term GRATs — are a common mitigation strategy.
SLAT — Spousal Lifetime Access Trust
SLAT: Remove Assets While Keeping Indirect Access
A SLAT solves a problem that stops many business owners from funding irrevocable trusts: the loss of access to those assets.
- You create an irrevocable trust for your spouse's benefit. Assets are removed from your estate immediately.
- Your spouse can access trust income and, in some structures, principal. Because you share finances as a married couple, you indirectly benefit from those distributions.
- Your children or a dynasty trust are the remainder beneficiaries — assets pass to them after your spouse's death.
Ideal for: Married couples with combined estates above $14M who want to use the full individual exemption ($13.99M in 2026) before the sunset, without giving up all access to the assets transferred.
Key risk: Divorce or your spouse's premature death eliminates your indirect access. Reciprocal SLATs — where each spouse creates a SLAT for the other — are sometimes used, but must be structured carefully to avoid IRS reciprocal trust challenges.
QPRT — Qualified Personal Residence Trust
QPRT: Transfer Your Home at a Steep Discount
A QPRT allows you to transfer your primary residence or vacation home to an irrevocable trust while retaining the right to live there for a fixed term — and the gift value is calculated actuarially, not at full fair market value.
- You transfer your home to the QPRT and retain the right to occupy it for 10–15 years (or another chosen term).
- The taxable gift equals only the remainder interest — the actuarially calculated value of the home after your retained occupancy period. On a $1.5M home with a 12-year term, the gift value might be only $600,000–$700,000.
- After the term ends, the home passes to heirs (usually a trust). If the home has appreciated to $2.5M, that full $2.5M is out of your estate — but you only used $600,000–$700,000 of your exemption.
- After the term ends, you must pay fair market rent to continue living in the home — which is itself an additional wealth transfer to the trust (rent payments from your estate to your heirs' trust, reducing your estate further).
Key risk: You must outlive the QPRT term. If you die during the term, the full home value returns to your estate. Also, heirs inherit your original cost basis — no step-up — which creates a capital gains issue if they sell later.
NC-Specific Context
North Carolina does not impose a state gift tax or state estate tax. All gift and estate tax planning for NC residents is driven entirely by federal law. This simplifies the analysis: you only need to worry about one exemption amount and one tax rate.
NC's flat 4.5% income tax rate applies to trust income when the trust is a non-grantor trust with NC situs or NC beneficiaries. For grantor trusts, income flows to your personal return at the same 4.5% NC rate. This is a relatively low state income tax burden compared to states like CA or NY, which makes grantor trust structures slightly less advantageous in NC than they are in high-income-tax states.
The 2026 Sunset: Act Before Year-End
The Tax Cuts and Jobs Act doubled the federal estate and gift tax exemption. That doubling expires December 31, 2025, unless Congress acts. For 2026, the exemption is projected to drop from $13.99M per person to approximately $7M per person ($14M for married couples).
Business owners with estates approaching or above $7M have a narrow window to lock in transfers at the higher exemption. IDGTs and SLATs funded before year-end preserve today's exemption permanently — even after the sunset, transfers already made are not "clawed back."
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