Not Long Ago
In the months preceding the general election in 2024, the owners of many closely held businesses who had not yet given much thought to the disposition of their future estates, including their businesses,[i] decided they should meet with their attorneys and other advisers[ii] to see what steps they should consider taking to protect their wealth, which in many, if not most, cases resided primarily in their business.
What prompted many of these owners to act was a sense of urgency arising from the realization that the federal transfer tax[iii] benefits and other tax benefits made available to them by the 2017 Tax Cuts and Jobs Act[iv] were going to expire after 2025 (perhaps sooner);[v] these included the enhanced unified estate and gift tax basic exclusion amount,[vi] the increased generation-skipping transfer tax exemption amount,[vii] the reduced top marginal income tax rate for ordinary income,[viii] and others.
As it turned out, their concerns were unwarranted, although the infighting within the new Administration, and among Republican members of the Senate and the House, may have distressed some interested observers.[ix]
The Past As Prologue[x]
The One Big Beautiful Bill Act (the “Act”)[xi] is in the books, at least for now. For some business owners, its enactment offers a reprieve from having to confront difficult issues regarding the future of their business including, for example, planning for the disposition of the business and the related tax considerations.[xii]
There is a risk, however, that some of these business owners, relying upon the “permanent” status of the Act’s taxpayer-friendly changes – permanent in the sense they do not have a stated expiration date[xiii] – will use its enactment as an excuse for deferring the adoption of such a plan, rather than as an opportunity to arrange the tax efficient transfer of their business.
These folks need to be reminded of the so-called “pendulum” theory of American politics and our two-party system. In brief, we have tended to swing between policies (and parties) reflecting a more liberal (or conservative) bent to those reflecting a more conservative (or liberal) one, then back again.[xiv]
One result of this historical experience has been manifested in the reversal of the other party’s legislative and regulatory programs.[xv]
The alacrity with which a newly installed Administration or recently empowered Party tries to wipe away their predecessor’s work is a reflection of both parties’ inexplicable refusal or inability to find common ground and to collaborate. Instead of good faith negotiations, we have each Party “going it alone” if it is expedient to do so,[xvi] while the other engages in ad hominem attacks and speaks in sound bites.
Under such circumstances, when it’s the “other” party’s turn to rule the roost, it will have few misgivings about eliminating rules in which it had no hand in drafting or in securing their passage.[xvii]
Change is Inevitable . . . and It May Be Ugly
Imagine, if you will, that in four years, or in eight years from now, the Democrats return to the White House and also acquire control of Congress.[xviii]
Think back on the original version of the Build Back Better Plan.[xix] Do you recall some of the changes proposed to the Code over the last four years?[xx] Here’s a sampling to remind you:
- an increased tax rate on the long-term capital gains of noncorporate taxpayers
- an increased top rate on the ordinary income of noncorporate taxpayers
- the reduction by 50 percent of the unified estate and gift tax basic exclusion amount
- the elimination of the basis step-up for property acquired from a decedent
- new limitations on the use of like kind exchanges
- treating the grantor’s payment of the income tax on the income of a grantor trust (other than a fully revocable trust) as a gift
- treating the transfer of property for consideration between a grantor trust and its deemed owner as a taxable sale for income tax purposes
- the prohibition on the grantor’s acquisition of property from a grantor trust without the recognition of gain or loss for income tax purposes
- the recognition of gain on the distribution of property in-kind from a grantor trust
- the recognition of gain by a revocable trust on the death of the grantor of such trust
- a minimum term of ten years for GRATs
- a minimum value for the remainder interest in a GRAT at the time of its creation (equal to 25% of the value of the assets transferred to the GRAT)
- new limitations on the use of valuation discounts for the owner’s transfer of business interests to their family
- restrictions on the use of formula clauses previously approved by the Courts (e.g., Wandry)
- curtail the use of Crummey powers – a donor would be allowed to make up to $50,000 of gifts in a single year without incurring a gift tax liability or using part of their unified gift and estate tax exemption amount
- limit the generations with respect to which the GST exemption would shield property from the GST tax
- a loan made by a trust to a trust beneficiary would be treated as a distribution for income tax purposes
- a loan to a trust beneficiary would be treated as a distribution by the trust for GST tax purposes
- limit the extent to which a lender’s estate may discount the value of a loan if the lender (say, a parent) treated the loan as having a sufficient rate of interest to avoid treating any part of the transaction as a gift.
In short, these fairly recent proposals – which came within a proverbial hair’s breadth of becoming law – were intended to eliminate many if not most of the tools on which business owners and their advisers have relied over the last three or four decades for transferring interests in their businesses to their families or to trusts for their benefit on a tax efficient basis.[xxi]
What Does It Mean? What to Do?
We are entering a period that may be described as a “tax summer,” to paraphrase a line from Game of Thrones. However, rest assured, “a tax winter is coming.” We don’t know how long this “tax summer” will be, but it will come to end, likely to be replaced by a more severe federal income/transfer tax regime. It will behoove business owners to plan accordingly.
Even the most procrastinating of business owners must realize that the time to plan for the disposition of their business and future estate is now. They need to start thinking in terms of disposable and appreciating assets, cashflow and sources of liquidity, business succession and continuity.
In particular, they need to consider taking advantage of the enhanced basic exclusion amount. This is the aggregate taxable fair market value of property (determined as of the date of the transfer) that a U.S. individual (a citizen or domiciliary) may transfer during their life or at their death, and for which no marital or charitable deduction is available, without incurring federal estate or gift tax.
The preservation and increase of the basic exclusion amount to $15 million beginning in 2026 (as adjusted for inflation after that) affords many individual taxpayers the opportunity to pass along more of their assets – including interests in businesses – to family members without incurring federal gift, estate, or GST tax liability.
If a business owner determines that it makes sense to remove business interests from their future estate, they should also consider taking advantage of opportunities for leveraging their remaining estate/gift/GST tax exemption amounts; these include some of the trust-based transfer vehicles described above that will likely be targeted again in the relatively not-too-distant future.
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[i] Or having done so, did little to formulate and then implement a plan.
[ii] For example, their business and estate planning attorneys, accountants, life insurance agents, and financial advisers. Too often, the members of this team are unaware of each other’s existence, let alone their respective roles and activities. This is one instance in which an owner’s divide-and-conquer approach, or their strategy of not showing all their cards to any single adviser, is not only self-defeating but downright foolish. (Yes, I was going to use another word.)
[iii] Estate Tax, Gift Tax, Generation-Skipping Transfer Tax – Chapters 11, 12 and 13 of the Code, respectively.
[iv] P.L. 115-97.
[v] Perhaps an even greater motivation was the prospect of the Build Back Better Plan being revived in its original form which, but for Senators Manchin and Sinema (neither of whom is still in office), would have been enacted into law. More on this shortly.
As always, if the business owner is going to regret giving up ownership of any part of the business, they should not rush into doing so. Other considerations outweigh tax benefits.
[vi] IRC Sec. 2010 and Sec. 2505.
[vii] IRC Sec. 2631.
[viii] IRC Sec. 1, Sec. 641.
[ix] And left others scratching their heads.
[x] I may have mentioned in other posts that I’m idiom-challenged.
[xi] P.L. 119-21. What a ridiculous name.
[xii] https://www.taxslaw.com/2025/07/closely-held-businesses-and-their-owners-ask-whats-big-and-beautiful-in-the-recent-tax-law/
[xiii] Unlike many of the tax provisions included in the Tax Cuts and Jobs Act, which were scheduled to sunset after 2025. There are many reasons for sunset clauses; for example, some are an outcome of political compromise, while others are a product of budget constraints.
[xiv] The pendulum is likely to swing more quickly when a party’s leadership supports something as patently unfair and selfish as insider trading by members of the government.
[xv] “My executive orders are better than yours.”
Suspend, for now, any notion that we’ve entered a new age in which the theory will no longer be relevant. Remember when Reagan beat Mondale? Enough said.
[xvi] The reconciliation process in the Senate facilitates this pattern of behavior. Recall how many times this process has been used in the last few years; for example, the 2017 Tax Cuts and Jobs Act, the American Rescue Plan of 2021, the Inflation Reduction Act of 2002, and now the One Big Beautiful Bill Act. There are others.
[xvii] Until we get back to those days, folks will continue to describe tax legislation as the Republican tax bill or the Democrat tax bill.
[xviii] Think back to 2021-2022 when the Dems controlled the Executive branch plus both Chambers of Congress. Remember the Georgia Senate elections?
[xix] And that Administration’s subsequent budget proposals, including changes to the Code.
[xx] I confess that I agree with many of these.
[xxi] This would not be a uniquely U.S. phenomenon. Many nations and international organizations, for various reasons, are considering or at least debating the imposition of special taxes on the wealthy, including wealth taxes.
