The Near-Perfect Wealth Transfer Storm

Anyone sitting down to sketch out a pros and cons list for the COVID-19 pandemic, is most likely coming up with a cons list  at least 5 times as long as the pros list.  Business owners have seen disruptions in supply chains, facility closures, and are staring down the barrel of economic uncertainty. However, given a somewhat “perfect storm” of factors that would allow for efficient transfer of ownership to the next generation, it is not all bad news for the business owner.

I examine two factors that have created this efficient wealth transfer environment below:


The pandemic has brought about uncertainty in droves across a number of industries and the overall economy.  There are some industries that have seen massive growth (how many times have you said Zoom meeting in the past 3 months?) and some that have seen their revenue fall of a cliff (are hotels ever going to come all the way back?).  In industries that have been negatively impacted, the decline in valuations is evident.  However, even industries that have prospered, it is likely uncertain how long the gravy train will last.  Is the spike in revenue and profits temporary?  Given the increase in uncertainty and a looming economic recession, it is safe to say that valuations have declined for a large number of privately held businesses across the country.

A decline in valuation is rarely a good thing, however, it can be advantageous assuming that valuations will rebound and are only temporarily depressed.  With a drop in valuation, ownership can be transferred through gifting strategies to move assets out of the estate.  Transferring an asset (i.e. ownership in a privately held business) when it is low and has a high likelihood of future growth is generally a good idea.


The Tax Cuts & Jobs Act (TCJA) that was rolled out at the end of 2017 increased the estate tax exemption to historically high levels.  The exemption amount is scheduled to expire in 2025, which allows for a temporary “use it or lose it” opportunity.  There has also been guidance stating that there will be no claw back if the exemption amount were to drop back down to pre-TCJA levels.

Is now the time to take a look at your estate plan?  Does it make sense to transfer some ownership in the business to management or to the next generation?  There is a strong case that the answer is yes.  We might not see an opportunity with depressed valuations and a relatively large exemption amount, like we are seeing right now, for quite some time.

There is a strict timeline on the exemption that may even be accelerated pending November’s election, and it is unclear how COVID-19 will continue to impact business valuations in the back half of 2020 and beyond.  So what are you waiting for?