Estate Planning When Most of Your Net Worth Is One Stock

A tech executive with $40M of net worth, of which $30M is a single employer’s stock, has a different estate planning problem than a more diversified household. The federal estate tax applies to wealth above $13.99M per person (2025), with a flat 40% rate on the excess. For a married couple with proper portability elections, the combined exemption is $27.98M. At $40M, estate tax on the excess is $4.8M of federal tax alone, before state estate tax (Massachusetts, New York, Washington, and others).

Shifting appreciating assets out of the estate before they appreciate further is the core move. Gift while the stock is low, let the appreciation occur in a trust outside your estate, and the gain escapes estate tax entirely. For a concentrated single-stock holder, the leverage is especially strong: a $5M gift of stock that becomes $20M at death saves $6M of estate tax on the appreciation.

This guide covers the trust structures that work for concentrated positions (GRAT, IDGT, SLAT), the gift-tax mechanics, the interaction with QSBS and capital gains planning, and the specific operational steps.

The core estate-tax math

The 2025 federal estate tax exemption is $13.99M per person, indexed for inflation. Sunset provisions in the 2017 TCJA would reduce this to roughly $7M per person on January 1, 2026, unless Congress acts. Legislation is currently moving through Congress to make the higher amount permanent, but the outcome as of early 2026 is uncertain.

Assets above the exemption are taxed at a flat 40% federal rate. For a single individual at $40M of estate value, federal estate tax is ($40M - $13.99M) × 40% = $10.4M. For a married couple using both exemptions through portability (DSUE election on Form 706 at first death), the combined exemption is $27.98M, and the tax on $40M is ($40M - $27.98M) × 40% = $4.81M.

State estate tax adds to the federal bill in about a dozen states. Massachusetts ($2M exemption, rates up to 16%), Washington ($2.193M exemption, rates up to 20%), New York ($6.94M exemption), and Oregon ($1M exemption) are the notable ones. California has no estate tax. For a Washington resident, a $20M estate faces Washington tax of roughly $2.2M on top of any federal tax.

Planning moves that matter:

Gift during life to use exemption before appreciation.
Use portability (DSUE) between spouses.
Structure trusts to freeze growth in your estate while shifting future appreciation outside.
Pay gift tax on large lifetime transfers to remove the tax itself from the estate.

Grantor Retained Annuity Trust (GRAT)

A GRAT is an irrevocable trust funded with an asset (typically high-appreciation potential) that pays the grantor an annuity for a fixed term. At the end of the term, the remainder passes to named beneficiaries tax-free if the annuity returned the principal plus the §7520 interest rate.

Example. Grantor contributes $10M of stock to a 2-year GRAT at a §7520 rate of 5.0%. Annuity payments are sized to return $10M plus 5% over two years. If the stock returns 20% over the two years, the trust has $14.4M at the end. The first $10.5M (principal plus 5% growth) pays back to the grantor; the remaining $3.9M passes to the beneficiaries tax-free.

For concentrated-stock holders, the “zero-out” GRAT is the standard structure. The annuity is set such that the present value of the annuity stream exactly equals the initial contribution (zero remainder for gift-tax purposes). Any growth above the §7520 rate becomes a tax-free transfer to beneficiaries.

Risks. If the grantor dies during the GRAT term, the assets are pulled back into the estate. Serial short-term GRATs (rolling 2-year terms) mitigate mortality risk. If the stock underperforms the §7520 rate, the GRAT “fails” (all assets return to the grantor), leaving no net transfer but no loss either.

GRATs are particularly effective when §7520 rates are low and expected stock appreciation is high. Low-rate environments make the “hurdle” easier to clear.

Intentionally Defective Grantor Trust (IDGT)

An IDGT is an irrevocable trust structured as a grantor trust for income tax purposes but a non-grantor trust for estate and gift tax purposes. The grantor pays income tax on trust income (which further reduces the taxable estate), but the trust assets are outside the estate for estate-tax purposes.

Typical sequence:

Grantor sells appreciated stock to the IDGT in exchange for a promissory note. Because the trust is a grantor trust for income-tax purposes, the sale is not a taxable event. No capital gain.
The note pays interest at the AFR (applicable federal rate, typically much lower than expected returns).
The IDGT holds the stock, which appreciates. Appreciation above the AFR is outside the estate.
Over time, the grantor pays income tax on dividends and realized gains in the trust, further reducing the estate.

Why “defective.” The trust is intentionally drafted to include specific grantor-trust triggers (swap power, loan power, reversionary interest under §673) that maintain grantor-trust status for income tax while keeping the assets out of the estate.

Best for: grantors with large concentrated positions where the expected long-term return exceeds the AFR, who can afford to pay trust income tax out of other assets without causing hardship.

Spousal Lifetime Access Trust (SLAT)

A SLAT is an irrevocable trust funded for the benefit of the grantor’s spouse (and potentially descendants). The spouse can receive distributions, effectively keeping the assets accessible to the family while outside the grantor’s estate.

The structure is popular for married couples where one spouse wants to use lifetime gift exemption without losing economic access entirely. The non-grantor spouse can receive distributions from the SLAT. If the couple divorces or the spouse dies, access is lost.

Many couples fund two reciprocal SLATs (one funded by each spouse for the benefit of the other). Reciprocal SLATs must be substantively different to avoid the “reciprocal trust doctrine” that would pull both back into the estates. Common differentiators: different trustees, different distribution standards, different time of funding (years apart), different beneficiary classes.

Gift tax mechanics

The lifetime gift and estate tax exclusion is $13.99M per person in 2025. Annual exclusion is $19,000 per donor per recipient per year. Gifts above the annual exclusion use lifetime exemption. Gifts above the total exemption trigger gift tax at 40%.

Gift-splitting between spouses on Form 709 allows one spouse’s gift to be treated as half from each, effectively doubling the annual and lifetime exclusions available to one-spouse donors.

Valuation of gifted stock is at FMV on the gift date. For private company stock, a qualified appraisal by a business valuation expert is required for any gift above $5,000 of closely held stock (higher thresholds for public stock). The appraisal establishes the basis for the gift and defends against IRS revaluation.

Discounts for lack of control and lack of marketability (DLOM) can reduce the gift-tax FMV on private stock by 20-40%, making lifetime transfers much more efficient for illiquid stock. A $10M gift of private stock with a 30% DLOM might use only $7M of lifetime exemption.

Stepping-up basis at death

The “step-up” rule under §1014 adjusts the basis of inherited assets to FMV at date of death. A founder who holds $20M of employer stock with $1,000 of basis, if held until death, gives the heirs a new basis of $20M. No capital gain is owed if the heirs sell immediately.

This creates a significant planning tradeoff against lifetime gifting. Assets gifted during life carry the grantor’s basis to the donee (carryover basis under §1015, no step-up). Assets held until death get a step-up.

The optimal mix depends on expected appreciation, estate size, and the holder’s liquidity needs. For holders well above the exemption, lifetime gifting is typically preferred despite losing step-up because the estate-tax savings (40% of future appreciation) exceeds the capital-gain savings on step-up (23.8% federal on the embedded gain).

For holders near or below the exemption, holding until death is usually better, because no estate tax is owed and heirs get full step-up.

QSBS interaction with estate planning

QSBS eligibility transfers through gifts and bequests under specific rules. A gift of QSBS to a non-grantor trust preserves the QSBS character and tacks the holding period to the donor’s (§1202(h)(2)). This is the basis for QSBS stacking: each trust has its own $10M exclusion, which combined with lifetime gifting produces outsized results.

Step-up at death does not preserve QSBS separately, but the stepped-up basis typically makes QSBS unnecessary (the embedded gain is eliminated by the step-up). For heirs, the key question is whether to sell post-death at the stepped-up basis or hold.

Frequently asked

What is portability and do I need to elect it? Portability allows a surviving spouse to inherit the unused estate tax exemption from the first-to-die spouse. It must be elected on a timely-filed Form 706 for the first estate, even if no tax is due. Failure to elect portability loses roughly $14M of exemption permanently. This is one of the most common estate-planning errors for moderate-estate couples.

Can I put my employer stock into a trust if I am an insider? Yes, but the stock retains its insider status in the trust. Transfers require coordinated Section 16 filings, and ongoing trades out of the trust may be subject to the insider’s trading restrictions and 10b5-1 plans.

What happens if the estate tax exemption drops in 2026? Gifts made before the drop are grandfathered under an anti-clawback rule promulgated under Treas. Reg. §20.2010-1. Using high exemption now locks it in. Failing to use it loses the $7M “bonus” exemption permanently if the sunset takes effect.

Do I need a separate attorney for estate planning versus tax? For complex concentrated-stock situations, yes. A trust and estates attorney handles the documents; a tax attorney or CPA handles the income-tax interaction with QSBS, gift tax basis, and ongoing trust-tax compliance. They coordinate.

What is a GRAT’s §7520 rate and how often does it change? The §7520 rate is published monthly by the IRS and equals 120% of the AFR for mid-term obligations. As of early 2026 it is in the range of 5%. GRATs created in low-rate months have lower “hurdle rates” and higher chances of passing significant value to beneficiaries.

Next step

Estate planning for concentrated positions requires coordinated legal and tax counsel. Start with a net-worth inventory showing what is in the estate, the basis and FMV of each asset, and the holding structure. The estate tax calculator estimates federal and state estate tax under current law. For estates above $20M, engage a T&E attorney now; the window for pre-2026 exemption use may be closing, and good structures take six to twelve months to set up well.