How a Family Manufacturer Gifted Shares to the Next Generation Without a Valuation Fight

Sam's List Editorial | 2026-08-07

How a Family Manufacturer Gifted Shares to the Next Generation Without a Valuation Fight This is an illustrative composite based on patterns that recur across family businesses. It does not describe a specific client, the figures are illustrative rather than actual, and nothing here should be read as a promise of a similar result. Gifting shares to children in a closely held business is not really a tax project. It is a documentation project with a tax consequence attached. The family in this composite ran a second-generation metal fabrication business in the upper Midwest, roughly $34M in revenue, two adult children in the company and one who was not. The father was 66. He had been saying "we should do something about the shares" for six years. The reason it kept not happening is the reason it usually does not happen. Everyone assumed the hard part was the valuation. The hard part was deciding what the family actually wanted. The 2026 Numbers That Frame Gifting Shares to Children Two figures do most of the structural work. The annual gift tax exclusion is $19,000 per recipient for 2026 . A married couple electing to split gifts can generally move $38,000 per recipient per year without touching lifetime exemption. The lifetime estate and gift tax exemption is $15 million per individual for 2026 , up from $13.99 million in 2025. The One Big Beautiful Bill Act extended the higher exemption past the scheduled 2025 sunset and set this level effective January 1, 2026, with inflation indexing going forward. A married couple can therefore shield $30 million combined. For this family, that mattered less than it sounds. At an illustrative $34M enterprise value, the couple's combined exemption covered most but not all of the business, and the exemption is a moving target set by Congress. Planning that assumes today's number is permanent is planning on a statute, not a fact. The practical read: the exemption removed the urgency, and removing urgency was useful, because urgency is what produces bad valuations. Finding One: Gifting Shares to Children Turns on the Appraisal Every argument in this area is a valuation argument. A gift of private company stock has to be reported at fair market value, and fair market value for a closely held business is an opinion supported by analysis. Rev. Rul. 59-60 is the framework the IRS, appraisers, and most buyers work from. It directs attention to the nature and history of the business, the economic outlook, book value and financial condition, earning and dividend capacity, goodwill, prior sales of the stock, and the market...

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