Because a gift is valued when it is made, and rollover units are worth the least, on paper, right after your deal closes. They are a minority stake with no market, so a qualified appraiser may apply discounts that lower the reported value further. If the platform is later resold at a higher value, all of that growth belongs to the trust, outside your estate. If it is not, you have used some exemption on an asset that did not grow, which is a real cost but not a catastrophe.
" - q: "How much can I give without paying gift tax in 2026?" a: "$19,000 per recipient per year under the annual exclusion ($38,000 from a married couple), plus a lifetime exemption of $15 million per person that also covers your estate at death. A gift of rollover units almost always uses lifetime exemption, which you report on Form 709. No tax is due until cumulative lifetime gifts exceed the exemption.
" - q: "What is a SLAT?" a: "A spousal lifetime access trust. You create an irrevocable trust for your spouse and children and give it the rollover units. The gift uses your exemption, the units and their future growth are out of your estate, and your spouse can receive distributions if the family needs money. The risk is divorce or the death of your spouse, which can cut off that access.
" - q: "What is a GRAT, and does it work for rollover equity?" a: "A grantor retained annuity trust. You put the units in, take back an annuity for a set number of years, and anything left over passes to your children with little or no gift tax. It works well when an asset grows faster than the IRS assumed rate (Section 7520), which ran from 4.6 to 5.2 percent in the first eight months of 2026. Higher rates make GRATs harder to beat. A GRAT also works poorly for generation-skipping transfers to grandchildren, so it is usually a children-only tool.
" - q: "What is an installment sale to an IDGT?" a: "You sell the units to an intentionally defective grantor trust in exchange for a note paying interest at the applicable federal rate. Because the trust is a grantor trust, the sale is ignored for income tax; you pay the trust's income tax, which is itself a further tax-free transfer. Growth above the note rate stays in the trust. It needs a seed gift to the trust first and a qualified appraisal of the units.
" - q: "Do I need an appraisal to gift rollover equity?" a: "Yes. A qualified appraisal supports the value on your gift tax return and starts the statute of limitations running. Without one, the IRS can challenge the value years later. The Tax Court's 2023 Hoensheid decision denied an entire charitable deduction for lack of a qualified appraisal; gift tax reporting has similar requirements. Budget for it.
" - q: "What is the New York estate tax cliff?" a: "New York exempts $7.35 million in 2026, but the exemption disappears quickly. If your estate exceeds 105 percent of the exemption ($7,717,500), the whole estate is taxed, not just the excess, at rates up to 16 percent. New York has no gift tax, so lifetime gifts of assets like rollover units can bring an estate below the cliff. Gifts made shortly before death may be added back, so plan early.
" - q: "When should I not gift my rollover units?" a: "When your estate, including the rollover at a realistic value, is well under the $15 million federal exemption (or $30 million as a couple) and you do not live in a state with its own estate tax. In that case there is no estate tax to save, and gifting gives up the stepped-up basis at death that would have wiped out the income tax on the gain. Also not when you may need the rollover proceeds yourself, or when the second bite looks unlikely.
" llms_summary: "Explains gifting private equity rollover equity to trusts before the platform is resold. 2026 federal estate and gift exemption is $15 million per person, permanent and indexed; annual exclusion $19,000. Rollover units suit gifting because of low current value, illiquidity, minority and marketability discounts, and possible appreciation at the second bite. Covers SLATs, GRATs (no generation-skipping benefit, harder at 2026 Section 7520 rates of 4.6 to 5.2 percent), IDGT installment sales, the qualified appraisal requirement, carryover basis versus step-up at death, New York's $7.35 million exemption with its 105 percent cliff and 16 percent top rate, operating agreement transfer restrictions, a worked illustration, and when not to gift." ---Because the estate tax is charged on what you own at death, at the value it has then, and rollover units may be worth several times their current paper value by then. If you move the units to a trust for your family today, you use some of your exemption at today's low value, and every dollar of later growth happens outside your estate. The rollover equity page explains what the units are. This page is about who should own them.
The 2026 federal estate and gift tax exemption is $15 million per person, $30 million for a married couple, made permanent by the 2025 tax law and indexed for inflation after 2026. Many physicians who sell a practice will never have an estate that large, and for them this page is mostly a reason not to spend money on trusts. But a partner who receives $6 million in cash, holds $2.5 million of rollover, owns a home and a retirement plan, and lives another 25 years can arrive at the exemption faster than expected, and a New York resident faces a much lower state threshold.
Estate planners look for four things in an asset to give away, and rollover units have all four.
The honest counterweight is on the second bite page. Platform resales fell from roughly 100 a year in 2021 and 2022 to 13 in 2024, and hold periods have stretched to 8 to 10 years. If the units are never worth more than they are today, you have used exemption for no estate tax benefit and given up the basis step-up described below.
Three structures are common. Your estate attorney will choose among them based on your family, your state, and how much exemption you want to use.
You give the units to an irrevocable trust for the benefit of your spouse and descendants. The gift uses your lifetime exemption. The units and their growth are out of both spouses' estates, and your spouse can receive distributions if your household needs money later, which is the feature that makes physicians comfortable using exemption on an asset they might otherwise want back. The trust can be drafted to last for generations, so it works for grandchildren as well. The main risk is that divorce or the death of your spouse can end the indirect access.
You transfer the units to a trust and take back fixed annual payments for a term of years. If the units grow faster than the IRS assumed rate under Section 7520, the excess passes to your children with little or no use of exemption. Section 7520 rates in 2026 ran from 4.6 percent in January to 5.2 percent in July and August, higher than the near-zero years, which makes the hurdle harder to clear. A GRAT has a further limit: it does not work well for gifts to grandchildren, because generation-skipping tax exemption cannot be efficiently allocated to it. And if you die during the term, most of the value comes back into your estate. A GRAT fits a physician who is confident of a near-term resale and wants to use little exemption.
You first make a seed gift of cash to a grantor trust, then sell the units to the trust for a promissory note at the applicable federal rate. Because you are treated as the owner of the trust for income tax, the sale itself triggers no gain, and you continue to pay the trust's income taxes, which is an additional transfer the gift tax does not count. Growth above the note rate stays in the trust. This structure uses less exemption than an outright gift, handles generation-skipping planning well, and is the most flexible of the three. It is also the most paperwork.
The stepped-up basis at death. Assets you own when you die get a new basis equal to their value on that date, so your heirs can sell them with no capital gains tax on the growth during your life. Assets you give away keep your basis in the hands of the recipient. Rollover units have a carryover basis from your practice, which for most physicians is close to zero. If the trust sells the units at the second bite for $3 million, nearly all of it is gain, taxed at 20 percent federal plus 3.8 percent net investment income tax, plus state tax if the trust or its beneficiaries are in a taxing state.
So the question is whether the estate tax you save exceeds the income tax you add. For an estate well above the exemption, the answer is usually yes, because the gain is taxed either way (the units will be sold in your lifetime or the trust's) and the estate tax is avoided entirely. For an estate under the exemption, the answer is usually no: there was no estate tax to save, and holding until death would have erased the income tax on the gain.
New York's estate tax exemption for 2026 is $7,350,000, less than half the federal figure, and it has a cliff. If your taxable estate exceeds 105 percent of the exemption, which is $7,717,500, you lose the exemption entirely and the whole estate is taxed at rates that reach 16 percent. An estate of $7.4 million pays tax on about $50,000. An estate of $7.8 million pays tax on the whole $7.8 million. Few tax rules punish a small excess this hard.
New York has no gift tax. That means a New York physician can bring an estate below the cliff by giving assets away during life, and rollover units, with their low current value and possible future growth, are a natural choice. Gifts made shortly before death may be added back to the estate under New York law, so the planning needs to happen years ahead, ideally soon after the practice sale closes. The New York page covers the state's income tax on the sale itself and its residency rules.
Check before you assume. Nearly every holdco operating agreement restricts transfers of units. Common provisions require the sponsor's written consent for any transfer, limit permitted transferees to family members or trusts for their benefit, require the trust to sign a joinder agreeing to all the same terms (including drag-along), and prohibit transfers that would create a tax problem for the company, such as a transfer that could terminate a partnership or affect an S election. Some agreements bar transfers entirely during the first years after closing.
The time to negotiate estate planning transfers is before the first deal closes. Ask that transfers to trusts for the benefit of your spouse and descendants be permitted without consent, subject to a joinder. If you have already closed, ask the sponsor for consent early; many will grant it for a properly drafted family trust because it costs them nothing. Do not fund a trust with units the agreement says you cannot transfer. The transfer may be void, and the gift tax return you filed will describe a gift that never happened.
Assume a married orthopedic surgeon in New York sells her practice interest for $8 million: $5.6 million in cash and $2.4 million in rollover units at the deal value. Assume her other assets (home, retirement accounts, taxable investments after tax on the sale) total $9 million, so her estate at the deal value of the units is about $11.4 million, above New York's cliff and on a path toward the federal exemption over 25 years.
In the year after closing, she transfers all of the units to a SLAT for her husband and children. Assume a qualified appraiser applies combined minority and marketability discounts of 25 percent, so the reported gift is $1.8 million. (The 25 percent is an assumption for this illustration; the actual discount is the appraiser's determination and can be higher or lower.) She files Form 709 and uses $1.8 million of her $15 million exemption. No gift tax is due.
Case A: the platform is resold in year eight and the units are bought out for $4.8 million, twice the deal value. The $4.8 million is in the trust, not her estate. The trust pays capital gains tax on the sale at 23.8 percent federal (basis carried over near zero), plus New York tax, which it would have paid anyway if she had held and sold. Her New York estate is now about $9 million rather than $13.8 million; whether that is below the cliff depends on her other assets at death.
Case B: the platform is sold for less than the deal value and common equity receives nothing. The trust holds worthless units. She has used $1.8 million of exemption for no estate tax benefit. Her remaining exemption is $13.2 million, which is still far more than most estates need. The cost of Case B is the legal and appraisal fees and the lost exemption; it is not a tax bill.
None of these figures predict what any platform will be worth. They show how the pieces fit together.
This is a page about a strategy that fits a minority of sellers. You should probably not gift rollover units if any of the following is true.
Add your after-tax cash from the sale, your other assets, and the rollover at deal value. If the total is under the federal exemption and you are not in New York or another estate tax state, stop here and keep the step-up.
Find the transfer restrictions in the holdco operating agreement. If you have not closed, negotiate permitted transfers to family trusts now.
Choose among a SLAT, GRAT, or IDGT sale based on your family and your state. Order the appraisal after the units are issued. File Form 709 for the year of the gift.
The second bite page explains why the sale may be years away, and the tax pillar covers the income tax the trust will eventually face on the gain.