Many long-time construction business owners eventually start thinking about their retirement and their family’s long-term financial security. If you’re at that stage—or nearing it—these four tax-efficient wealth-transfer strategies can help preserve your legacy and reduce estate taxes before major changes take effect in 2026.

Tip for real estate developers and commercial property owners: These strategies also apply to those with appreciating property assets, making them useful for real estate investors and private equity professionals managing construction-backed portfolios.

1. Annual Gifting

Annual gifting is a time-tested way to reduce the size of a taxable estate. It’s especially effective when transferring:

• Assets expected to appreciate (e.g., real estate or stocks)

• Assets eligible for valuation discounts (e.g., for lack of marketability or control)

The OBBBA (One Big Beautiful Bill Act) permanently increases the federal estate, gift, and generation-skipping transfer (GST) tax exemption to $15 million per individual. This is a significant increase from the previous exemption of $13.99 million in 2025. This increased exemption takes effect on January 1, 2026.

2. Grantor Retained Annuity Trusts (GRATs)

A GRAT allows you to transfer appreciating assets with minimal gift or estate tax consequences.

How it works:

• You place assets into the trust and receive annuity payments over a set term.
• The remaining value at the end of the term passes to your beneficiaries tax-free.
• The trust’s income and gains are taxed to you, which further reduces your estate.

Important caveat: You must outlive the annuity term for the full benefit.

Note: H.R. 1 and other proposed tax reforms have renewed scrutiny of GRATs. While no immediate changes are enacted, future restrictions—such as required minimum terms or limits on valuation discounts—may be coming. 2025 could be a key window of opportunity.

3. Intentionally Defective Grantor Trusts (IDGTs)

An IDGT lets you move appreciating assets out of your estate while still paying taxes on the trust income. This benefits your heirs because:

• You reduce your estate without triggering gift tax on the income tax payments.

• You can also sell assets to the trust at fair market value in exchange for a promissory note.

This structure allows the asset’s appreciation to occur outside your estate, while the note (which typically grows more slowly) is included in your estate.

4. Intrafamily Loans

If you have significant liquid wealth, consider making loans to family members instead of gifts. Benefits include:

• IRS allows low interest rates on properly documented loans.

• Loans don’t reduce your gift or estate tax exemptions.

• Appreciation of loaned funds occurs outside of your estate.

Just be sure the loan is backed by a promissory note to meet IRS requirements.

Heads-Up on 2025 Tax Reform

In July 2025, the U.S. House passed the One Big Beautiful Bill (H.R. 1)—a major federal tax reform package that confirms the reduction of the federal estate and gift tax exemption starting in 2026. While Senate action is pending, most estate planning professionals agree: 2025 is a critical year to evaluate and act on your wealth-transfer strategy.

Start Sooner, Not Later

Building a successful construction or real estate business takes time, and so does smart succession planning. These strategies can help you reduce future tax liabilities and position your heirs for long-term success.

We’re here to help assess your situation and develop a wealth-transfer plan that aligns with your personal, family, and business goals. Learn more about our services for Construction Contractors and Real Estate Professionals.