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.
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.
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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.
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.
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.
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.
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.
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.
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.
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.
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.
Sterling structures and administers the trust. Your existing financial advisor selects the portfolio inside it. Your trusted relationships remain intact after the sale.
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.
Spendthrift provisions shelter trust assets from creditor claims, protecting the wealth you’ve built long after the business is sold.
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.
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.
Sell the business for cash. If there is a gain, it is subject to capital gains tax, plus depreciation recapture at higher rates.
Exchange stock in the business for stock of the acquiring company under IRC types A, B, C, D, or E reorganization.
Sell for a combination of cash and a qualifying note under §453, spreading gain realization over multiple tax years.
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.
See the full side-by-side comparison: Comparing Your Options →
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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