Services · Sterling Foundations & Trusts

Business Owner Trusts

The sale of your business is likely the largest financial transaction of your life. A §664 Business Owner Trust lets the trust sell your business with no capital gains tax due at the trust level—preserving decades of work for you and your family.

The Problem

Your Biggest Asset Shouldn’t Cost You 30–40 Cents on Every Dollar.

For most business owners, the business itself is their single largest asset—and it is entirely illiquid until the day they sell. At that moment, capital gains tax of 20–40% (depending on structure and state) can take an enormous share of everything you’ve built.

A §664 Business Owner Trust lets you contribute your ownership interest before the sale. The trust—which is tax-exempt under federal law—then sells the business and retains 100% of the proceeds. Your advisor reinvests those proceeds in a diversified portfolio of your choosing.

  • No capital gains tax at the trust level on the business sale
  • C-corp income is taxed the same regardless of who owns the stock
  • Income tax deduction of at least 10% of contributed value upon funding
  • Proceeds reinvested by your own financial advisor—full control of the portfolio
  • Income deferral option: advisor can defer payments and minimize tax timing
  • Income for you, your spouse, children, and grandchildren
  • Asset protection; trust term of 50–60 years
0%
Capital gains tax at the trust level when your business is sold
≥10%
Upfront income tax deduction as a percentage of contributed business value
100%
Of sale proceeds available to reinvest for your family’s future
50–60
Years of tax-deferred investment growth for you and your heirs
Client Testimonial
BP
Bruce Popper
Financial Advisor, Lion Street
Sterling Foundations & Trusts

“I haven’t found anybody better in my 40 years than the people I strategized with at Sterling.”

“I’ve found Sterling to be an incredible resource.”

Bruce Popper
Financial Advisor, Lion Street Private Client Group
How It Works

Plan Before the Sale—Timing Is Everything.

The Business Owner Trust must be established and funded before the business is under contract or the sale has been agreed upon. Sterling works with you and your advisors well in advance of your exit to structure the trust correctly.

1

Establish the Trust Before the Sale

Sterling and your legal team create a §664 charitable remainder trust structured for your family’s income and legacy objectives. The trust must be funded before any binding sale agreement is in place.

2

Contribute Your Ownership Interest

You contribute your ownership interest in the business (LLC membership units, partnership interests, C-corp stock, or other structures) to the trust. This is not a taxable event.

3

The Trust Sells the Business

The trust—as the owner—executes the sale. Because it is tax-exempt under §664, no capital gains tax is due at the trust level. The trust receives 100% of the sale proceeds.

4

Reinvest and Receive Income

Your advisor invests the full proceeds in an appropriate portfolio. You may take income distributions immediately or defer them for continued tax-deferred compounding within the trust.

Case Study · Business Sale

$10.25 Million Software Company—$3.8 Million in Tax Savings.

Case Study #102 · Selling a Business

Robert & Laura’s Situation

Robert is 77 and Laura is 67. They own an LLC software services company worth $10,250,000, including valuable copyrights. They have two daughters, Natalie (42) and Jenna (40). Selling outright would cost $3,802,750 in capital gains taxes, leaving only $6,447,250 to invest. Sterling recommended two Business Owner Trusts—one for each daughter to eventually receive income after Robert and Laura.

Capital Gains Tax Savings
$3,802,750 saved on the business sale
Full Proceeds to Invest
$10,250,000 reinvested (vs. $6,447,250 after tax)
Net Spendable Income
2× expected income vs. outright sale over trust term
Income Tax Deduction
$1,025,000 deduction in year of funding
Lifetime Income
Robert & Laura, then Natalie & Jenna, receive income for life
Generational Transfer
Grandsons receive additional income from the trusts
Key Benefits

Why Business Owners Choose This Strategy.

🏢

Preserve Your Life’s Work

Instead of surrendering 30–40% of your business value to taxes, the trust sells and retains 100%—putting the full value of your enterprise to work for your family.

📉

Income Tax Deduction at Funding

In the same year you contribute your business interest, you receive an income tax deduction of at least 10% of the fair market value—often worth hundreds of thousands of dollars.

Control Your Income Timing

Choose when to take distributions from the trust. Deferring income gives you control over your tax rate from year to year—a powerful planning tool after a large liquidity event.

💼

Your Advisor Manages the Assets

Sterling structures and administers the trust. Your existing financial advisor selects the portfolio inside it. Your trusted relationships remain intact after the sale.

👨‍👩‍👧‍👦

Legacy for Your Family

Structure income for multiple generations over 50–60 years—your spouse, children, and grandchildren can all benefit from the value you created in your business.

🔒

Asset Protection

Spendthrift provisions shelter trust assets from creditor claims, protecting the wealth you’ve built long after the business is sold.

Important Note on S-Corporations:

S-corp ownership interests involve additional planning considerations. Solutions depend heavily on specific facts, and presenting a generic answer could be misleading. If you own an S-corp, please contact us directly to discuss your situation—we have extensive experience with S-corp exit planning.

Comparing Your Options

Four Established Methods for Selling a Business

The sale of a business is often the largest single financial transaction in the owner’s life. Below, we compare four established methods of disposition.

Straightforward but costly

Outright Sale

Sell the business for cash. If there is a gain, it is subject to capital gains tax, plus depreciation recapture at higher rates.

  • Immediate tax liability of 20–40% depending on state and recapture
  • Complete liquidity and clean break
  • Stepped-up basis available only if owner holds until death
Rare for small businesses

Tax-Free Reorganization

Exchange stock in the business for stock of the acquiring company under IRC types A, B, C, D, or E reorganization.

  • Requires a C-corp or S-corp structure
  • Makes sense mainly when the buyer is a publicly traded company
  • Seller receives stock, not cash—trades one concentrated position for another
  • Any cash received can render the entire sale taxable (in a B reorganization)
Modest savings, counterparty risk

Installment Sale

Sell for a combination of cash and a qualifying note under §453, spreading gain realization over multiple tax years.

  • Only capital assets held for at least one year are eligible
  • Interest on the note taxed at ordinary rates (~40.8% federal)
  • Recapture may be taxed in the year of sale regardless
  • Risk that tax rates increase in future years; seller becomes a creditor of the buyer
Tax-exempt · Diversified · Multigenerational

Business Owner Trust (§664)

A tax-exempt trust under §664. Contributions of ownership in an appreciated business are tax-free, and the trust sells the business with no capital gains tax due at the trust level.

  • No capital gains tax at the trust level; C-corp income is taxed the same regardless of owner
  • Income tax deduction of at least 10% of contributed value
  • Proceeds reinvested in a diversified portfolio by the owner’s advisor
  • Income deferral option: advisor can defer payments and tax
  • Income for the contributor, spouse, children, and grandchildren
  • Asset protection; trust term of 50–60 years

See the full side-by-side comparison: Comparing Your Options →

Planning to Sell Your Business?

The tax planning must happen before the sale. Sterling works with business owners, their attorneys, and their advisors to structure trusts that preserve decades of value. Start the conversation today.

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