What an actively managed family plan really looks like
Prepared for internal use • March 2026
Work through the playbook in four sequential passes for each family engagement:
Classify the estate as taxable, borderline, or non-taxable. Then classify each asset by gain/loss, IRD status, expected sale timing, and charitable suitability.
Decide whether each asset should be inside or outside the estate at death — the inclusion vs. removal question.
Choose the lowest-risk tool that preserves optionality. Quantify the tax tradeoff between step-up and no step-up.
Seven questions to run for each major asset or asset bucket
Federal estate above exclusion; state exposure; growth likely to outrun exclusion.
Founder stock, concentrated stock, low-basis real estate, post-close liquidity plan.
Basis exceeds FMV; venture or PE markdowns; likely future sale.
IRA, deferred comp, installment note, accrued bond interest, unpaid compensation.
Uncertain exemption, unknown health horizon, asset volatility, possible move to NH/FL.
Client already gives; DAF/private foundation in place; exit year liquidity.
Pass-through, C-corp founder stock, family real estate LLC, FLP.
16 strategies with worked examples
💡 A: Founder holds $20M stock with $2M basis. Estate below exclusion. Retaining until death → heirs sell at stepped-up basis, avoiding $18M × 23.8% = $4.3M federal tax.
💡 B: IDGT holds $8M stock (basis $1M). Grantor swaps $6M stock for $6M bonds. Stock gets step-up at death → saves ~$1.2M federal tax; bonds pass to trust with no gain.
💡 C: Daughter gifts $5M stock (basis $500K) to mother (age 82, $4M estate, $9M+ unused exclusion). After 1-year window, mother dies → grandchildren inherit with stepped-up basis, saving ~$1.1M.
💡 D: Trust holds $12M ($8M gain, $4M loss). Beneficiary has $5M exclusion. Formula GPOA includes only $5M of gain assets → step-up saves ~$950K; losses stay harvestable.
💡 E: H dies ($25M). Executor funds $13M bypass with high-basis bonds, $12M QTIP with low-basis stock ($2M basis). Stock grows to $15M, gets step-up at W's death → saves ~$3.1M in cap gains.
💡 F: Sell $10M business interest (basis $1M, grows to $25M in 7 yrs) to IDGT. $15M future growth avoids 40% estate tax = $6M saved. Swap power retained for later re-optimization.
💡 G: $5M pre-IPO stock → 2-yr GRAT. Stock doubles. ~$5M passes gift-tax-free, saving $2M estate tax.
💡 H: $10M PE ($13M basis = $3M loss). Separate trust preserves loss worth up to $714K in future offsets.
💡 I: $3M venture loss offsets $3M RE gains → saves $714K now vs. risking step-down at death.
💡 J: RE LLC ($15M, basis $7M) recapped: voting 1% / non-voting 99%. Non-voting gifted to IDGT with discounts, freezing ~$14.8M outside estate.
💡 K: 50% RE LLC interest steps up outside to $7.5M; inside basis only $4M. Election bridges $3.5M gap, saving ~$833K.
💡 L: $30M qualified C-corp stock. Gift to 3 trusts = 4 exclusions × $10M = $40M gain excluded.
💡 M — Donate & Repurchase: $5M stock (basis $500K). Donate $2M to DAF → $740K deduction benefit + $357K cap gains avoided. Repurchase on open market at new $2M basis. Total benefit: ~$1.1M.
💡 N: Client (65) contributes $3M stock (basis $300K) to 5% CRUT. CRT sells tax-free. ~$150K/yr income. ~$900K deduction saves ~$333K. $2.7M gain deferred.
💡 O: $5M IRA to children = ~$1.85M tax (SECURE Act). Name DAF as beneficiary instead; leave stock to children with step-up → saves $1.85M.
💡 P: H dies ($20M estate). W disclaims $6M of low-basis stock → flows to credit-shelter trust using H's exemption. Shelters $6M from estate tax at W's death, saving up to $2.4M — decided with actual values, not guesses.
| Strategy | Best When |
|---|---|
| A. Retain | Non-taxable estate, high gain, sale likely |
| B. Swap | Existing IDGT, late-life repositioning |
| C. Upstream | Parent has unused exclusion |
| D. Formula GPOA | Borderline estate, need precision |
| E. QTIP/Clayton | Married, two-death planning |
| F. IDGT Sale | Clearly taxable, high growth asset |
| G. GRAT | Volatile asset, near-term catalyst |
| H. Loss Segregation | Built-in loss assets in estate |
| I. Loss Harvest | Offsetting gains, uncertain horizon |
| J. Entity Recap | Closely held, multi-asset families |
| K. §754 | Partnership/LLC with appreciated assets |
| L. QSBS | Qualified C-corp, exclusion stacking |
| M. DAF Donate | Philanthropic, concentrated stock |
| N. CRT | Diversification + income + charity |
| O. IRD to Charity | Large IRA, philanthropic family |
| P. Disclaimer | Uncertain values, post-death flexibility |
MA • NH • CA • FL — For 2026 planning, the state line matters
| Question | Massachusetts | New Hampshire | California | Florida |
|---|---|---|---|---|
| Capital gains tax | 5% base; short-term 8.5%; 4% surtax above threshold | No state income tax on capital gains | Taxed as ordinary income; top rate 13.3% | No state income tax |
| State estate tax | Over $2M; no portability; rates up to 16% | No estate or inheritance tax | No state estate or inheritance tax | No state estate or inheritance tax |
| Source-state RE gain | MA-source gain & withholding regardless of residency | N/A — no income tax | CA-source RE gain taxed regardless of residency | N/A — no income tax |
| Business sale after move | Nonresidents taxed on MA-connected business income | No NH tax; MA may still reach MA-source income | FTB aggressively sources CA business interests | No FL tax; CA/MA may assert source-state claims |
| Audit risk | High for last-minute moves | Focus on proving move occurred | Very high; FTB audits departures aggressively | Low; departure-state risk remains |
Takeaway: NH and FL eliminate state income and estate tax. CA eliminates estate tax but imposes the highest cap gains rate (13.3%). MA has both. For every move, analyze source rules — a move does not cleanse income sourced to the departure state.
Illustrative balance sheet & recommended architecture
| Asset | FMV | Basis | Built-in Gain/(Loss) | Comment |
|---|---|---|---|---|
| Concentrated public stock | $35M | $5M | $30M gain | Low basis; likely diversification |
| Operating business (LLC) | $30M | $3M | $27M gain | Strong growth; sale in 5–7 yrs |
| Commercial real estate LLC | $15M | $7M | $8M gain | Depreciation history; §754 candidate |
| PE / venture fund positions | $10M | $13M | ($3M loss) | Do not step down — isolate |
| Traditional IRA / deferred comp | $5M | IRD | — | No step-up; charitable candidate |
| Cash / bonds | $5M | $5M | $0 | Swap currency / equalization |
Retaining stock with $30M of built-in gain inside the estate receives a full step-up at death.
$30M gain × 23.8% federal = $7.14M | $30M × ~9% MA (with surtax) = $2.7M
Sell non-voting slice to freeze future appreciation. Preserve swap power so a portion can return if estate tax picture softens or family moves to NH/FL.
If business grows to $50M+ over 7 years, the $20M+ of future appreciation avoids 40% estate tax.
Isolate so death does not destroy built-in capital losses.
$3M built-in loss × 23.8% = $714K of future capital gains offset preserved.
Reserve step-up-eligible assets for family. Direct IRD assets to charity or DAF.
$5M IRA to children under SECURE Act 10-year rule at ~37% blended rate = $1.85M. Charity pays $0.
Ensure outside basis step-up translates to inside tax benefit. Without §754, the step-up is "on paper only."
Converts step-up into real inside-basis adjustments for depreciation and lower future gain on sale.
Trust language allows trustee to select specific assets for credit-shelter trust (CST) vs. marital trust. Move high-basis / stable positions to CST. Move low-basis, high-growth positions the family plans to keep long-term into the marital trust for a second basis step-up at surviving spouse's death.
Concentrated stock at $35M inheritance, growing at 8% for 5 years → ~$51.4M at surviving spouse's death. Additional appreciation of ~$16.4M receives a second step-up. $16.4M × 23.8% = $3.9M federal | $16.4M × ~9% MA = $1.5M. Total second-death savings of ~$5.2M on growth alone.
$20M long-term gain triggers ~5% on first slice and ~9% above surtax threshold.
State estate tax adds a layer ($2M threshold).
Push toward domicile change or aggressive lifetime freezing.
Removes state cap gains and estate tax entirely. I&D tax repealed Jan 1, 2025.
MA-source rules still apply to MA RE and MA-connected business income.
Strong option for MA families with genuine domicile change.
No estate tax, but cap gains at up to 13.3% — the nation's highest.
FTB aggressively audits departures. Source rules reach CA business income & RE post-move.
Step-up is even more valuable here: $30M gain → ~$4M state tax eliminated.
No income tax. No estate tax. No source-state claims on FL income.
Primary value as destination — eliminates state tax entirely.
Departure-state audit risk remains. CA & MA pursue source claims after FL move.
Key questions — now including CA & FL considerations
| Ask the Client | What the Answer Means | Likely Action Items |
|---|---|---|
| Which assets are most likely to be sold in 1–7 years? | Those assets deserve the most basis attention | Map gain, sale date, inside-vs-outside positioning |
| How much exclusion is truly available? | Basis planning only works if inclusion doesn't create worse estate tax | Refresh gift history, portability, GST posture, state exposure |
| Which assets should never come back into the estate? | Loss assets and IRD assets usually fall here | Segregate immediately; update beneficiary designations for IRD |
| What existing planning gives us toggles? | Existing trusts may already have swap, protector, or appointment powers | Review old trusts before drafting new structures |
| Could a domicile change change the answer? | State taxes materially change step-up vs. freeze math. CA's 13.3% rate makes step-up even more valuable; NH/FL eliminate state tax entirely. | Run multi-state sensitivity (MA, NH, CA, FL) before any sale or late-life move. Analyze source rules for departure state. |
| Is the client philanthropic or only tax-sensitive? | Charitable strategies only work if intent is real | DAF/CRT/charitable bequest when goals align. Consider donate-and-repurchase for concentrated stock. |
| Are there CA or MA source-state issues even after a move? | Both states aggressively pursue source-state income from RE, business interests, and pass-throughs after residency ends. | Map each asset's state nexus. Plan sale timing relative to move. Budget for audit defense. |
Practical document-by-document reference
Classify the estate • Classify each asset • Position inside or outside • Choose the lowest-risk tool that preserves optionality
Basis Planning Playbook • March 2026