Your estate is the sum of all you got (assets minus liabilities)
You want to be very thoughtful how you structure this for the sake of all your dependents - the ones you have, and the ones you will have in the future
You will die - or even if you are alive, you will want to share your wealth with your family
And if you have a large estate, your dependents will be taxed heavily on everything they receive unless you plan for this accordingly
Enter a Grantor Retained Annuity Trust, or GRAT
The way a GRAT works is:
- You move your shares to a GRAT with your dependents as a beneficiary
- The present value of your shares count as a "gift" (subject to gift tax) but all appreciation is transferred without any gift / estate taxes
So you wanna ideally set one up ASAP
Best case, you do this when you set up your startup so the entire upside is captured by your dependents
But this can still work as long as it's relatively early in your company journey
Allegedly, Mark Z placed FB shares pre-IPO in a GRAT that have since appreciated ~$50M
You can also set up non-grantor trusts for the benefit of your family
You have to appoint a trustee & lose control over the assets, but they serve as a QSBS "multiplier"
The $10M limit applies separately to you and each trust, while protecting the gains from gift & estate taxes
✅ All done
This is the quick & dirty version of what you should do early on
You can always dive further into the rabbit hole, but there are decreasing marginal returns
And other stuff (i.e. google "DING" etc) starts getting pretty shady and I'd avoid it
Final note - I wish I did this when setting up my startup, but I'm super happy about how everything turned out
Something I frequently think about:
The people who spend the most amount of time optimizing their taxes tend to be some of the unhappiest people I know...
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