Dominic Rovano
Dominic Rovano

The ever-evolving landscape of PR and marketing demands constant adaptation. The same is true for your estate plan. With the Federal gift and estate tax exemption set to decrease significantly in 2026, it’s time for PR and marketing agency owners to take a proactive approach and re-evaluate their strategies.

Why estate planning matters for PR and marketing agencies

Estate planning isn’t just about mansions and yachts. It’s about ensuring your assets—including your business—are distributed according to your wishes after you’re gone. This minimizes taxes, avoids family conflict and provides clarity for your heirs, ensuring a smooth transition of your legacy.

Gifting strategies to reduce your estate value

Gifting is a powerful strategy to reduce the size of your estate. When you give away assets like cash, stocks or even ownership stakes in your business, you’re essentially removing them from your taxable estate. This lowers the value the IRS will consider when calculating any estate tax owed.

When you gift appreciating assets like stocks, real estate or interest in your business, you’re effectively transferring the future growth outside of your estate. This means any future increase in value won’t be subject to estate tax when you pass away. The recipient will be responsible for capital gains tax if they sell the asset, but that’s often a more favorable tax situation compared to estate tax.

Understanding estate taxes

Your estate is taxed on its value at the time of your death. However, there’s a significant Federal lifetime exemption that can be applied against this value. The current lifetime gift and estate tax exemption is a hefty $13.61 million per person (as of 2024). For married couples, the exemption is effectively doubled at $27.22 million. This means the entire estate value can reach this amount without incurring federal estate tax. Any estates exceeding this exemption amount are taxed in a graduated system, with rates starting at 18 percent and going all the way up to 40 percent for the portion exceeding $1 million. Depending on the state where you reside, your estate may also be subject to a state estate tax.

Sunsetting of the federal lifetime exemption and potential impact

The current high lifetime gift and estate tax exemption is scheduled to sunset on December 31, 2025. This means that unless Congress acts to extend or make it permanent, the exemption amount will significantly decrease in 2026, to approximately $7 million per person (adjusted for inflation).

While there’s no guarantee what Congress might do, for estate planning purposes, it’s wise to consider the potential decrease and plan accordingly. The good news is that gifts made before the exemption sunsets are “grandfathered in” under the current, higher exemption amount. The IRS won’t “claw back” the benefit of these gifts if the exemption decreases later. This creates a strong incentive to utilize the current high exemption by strategically making gifts before the end of 2025.

Gifting ownership stakes now: a strategic approach

Your estate includes all your assets, such as real estate, investment portfolios, jewelry, retirement accounts, individually owned life insurance policies and your business interests. The current high federal exemption allows you to strategically transfer ownership stakes in your agency to your children, other individuals or trusts for these intended beneficiaries without incurring gift tax. This reduces the overall value of your taxable estate come 2026 and can be a very strategic way to minimize your estate’s size.

Gifting an ownership stake in your agency involves a formal business valuation conducted by a qualified appraiser to establish a fair market value. This valuation is crucial for determining the potential gift amount and minimizing your estate’s taxable value. This formal business valuation is also necessary to meet the adequate disclosure rules when reporting the gift to the IRS.

Unlike publicly traded companies, privately held businesses like PR and marketing agencies qualify for valuation discounts that can significantly reduce the value of the gift and therefore further reduce the size of your taxable estate. These discounts consider factors like lack of marketability (difficulty selling your entire stake quickly) and lack of control (ownership might be split amongst others). These discounts translate to an ability to transfer additional interests to your heirs, if you choose, lower your taxable estate, and ultimately save your heirs a significant amount of money.

The power of compounding growth with strategic gifting

Coupled with the discounts provided to privately held companies, there’s another benefit to consider. Because the value of your business will most likely grow over time, gifting a non-controlling stake in your business now can lead to significant tax savings for your heirs. An ownership stake valued at $5 million today, with the allowable discounts, might be worth $20 million in the future when sold at fair market value. The $15 million difference would have been excluded from your estate and passed along to your heirs, potentially saving them $6 million in federal estate tax (excluding any state estate tax implications).

Additional strategies for estate reduction

There are other ways to reduce your estate that don’t involve appraisals or gift tax returns. Each year, the IRS allows you to give up to the annual exclusion amount (currently $18,000 in 2024) per donor, per recipient per year without incurring any gift tax or affecting your lifetime exemption. These gifts can be cash or stocks as long as the total value for each recipient stays below the exclusion amount. This approach can add up significantly. For example, if you give $18,000 per year to your two children for ten years, you’ve effectively removed $360,000 from your taxable estate without any tax implications. It’s important to note that you don’t need to be related to the recipient to benefit from this annual exclusion. In addition, if you and your spouse both utilize your annual exclusion gifting ability, the savings could be compounded without using your lifetime gift and estate tax exemption.

Don’t wait until it’s too late

With the sunsetting of the heightened lifetime exemption in 2026, proactive estate planning today is essential for PR and marketing agency owners. Consult with your tax advisor or estate planning attorney now to create a tax-efficient strategy for your legacy. Remember, a little planning today can save your family a fortune tomorrow.

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Dominic Rovano, CPA, is a Partner at Armanino LLP.