Transferring a closely held business to the next generation is rarely just about tax efficiency. Advisers are often balancing multiple client objectives at once, reducing estate tax exposure, preserving income for the client, and ensuring the strategy is easy to explain and defend.
One commonly used approach is gifting a business to an Intentionally Defective Grantor Trust (IDGT), paired with a promissory note. In this article, we’ll walk through a practical example of how advisers can model this strategy in Voyant and clearly demonstrate its impact to clients.
Why Advisers Use IDGTs in Business Gifting Strategies
IDGTs are frequently used when a client wants to move appreciating assets out of their taxable estate while retaining certain economic benefits during their lifetime.
From a planning perspective, this strategy allows advisers to:
Freeze the current value of a business for estate tax purposes
Shift future appreciation to heirs outside the client’s estate
Maintain flexibility around income and cash flow
For clients who hold significant value in a closely held business, this can be a powerful way to transfer wealth without relinquishing financial security.
The Planning Scenario
In this example, the client owns a closely held business structured as an LLC taxed as a C-Corporation. The client is also the grantor of an IDGT, with a child named as the trust beneficiary.
The planning objective is straightforward:
Transfer ownership of the business to the IDGT
Reduce the client’s future estate tax exposure
Structure payments back to the client to support ongoing income needs
This type of scenario is well-suited to a comparative presentation, allowing advisers to show the difference between maintaining the status quo and implementing the gifting strategy.
Step 1: Using a What-If Plan to Frame the Conversation
Rather than altering the client’s base plan, advisers can create a dedicated “what-if” plan to model the IDGT strategy.
This approach:
Keeps the original plan intact
Makes the strategy easier to explain
Allows for side-by-side comparison of estate and legacy outcomes
From a client communication standpoint, this is often the cleanest way to introduce a complex estate planning idea without overwhelming the conversation.
Step 2: Gifting the Business to the IDGT
The next step is transferring ownership of the business to the IDGT. In this example, 100% of the business ownership is gifted to the trust at the start of the plan.
From a planning perspective, this accomplishes two important things:
The business value is removed from the client’s taxable estate
Future growth of the business occurs inside the trust, outside of estate tax exposure
Advisers can use Year View to clearly show the ownership change and confirm that the trust now holds the business asset.
Open the business from the Dashboard.
From the Ownership Transfers Screen click (+) Transfer.
Gift the Business to the IDGT Trust. Note the trust must exist in the plan for it to appear as an option.
Why Advisers Often Pair This Strategy with a Promissory Note
While gifting a business to an IDGT can be effective, clients are often concerned about giving up too much control or income.
This is where a promissory note becomes a useful planning tool.
By using a promissory note, advisers can:
Compensate the client for the value of the transferred business
Create a predictable stream of payments back to the client
Align the strategy with the client’s cash-flow needs
Rather than viewing the promissory note as a technical add-on, advisers can position it as a way to balance wealth transfer with financial security.
Step 3: Modeling the Promissory Note
Click the (+) in the bottom right hand of the dashboard and select Debt & Loans > Promissory Note
Defining the Parties
When setting up the promissory note:
The promisee is the client, who will receive payments
The promisor is the IDGT, which is responsible for repayment
Voyant’s inline help makes it easy to confirm these roles during setup.
Modeling Growth and Repayment
Depending on the planning approach, advisers may choose to model growth in the note’s principal over time. Voyant allows this growth to be expressed as either a fixed amount or a percentage and recognized either over time or upfront.
These settings influence:
Total repayment to the client
Cash flow timing
Advisers can adjust these assumptions to align with the intended structure of the strategy.
Aligning the Note with the Business Transfer
In this example, the principal of the promissory note is set to match the value of the business transferred to the trust. Advisers can then define:
To set this timing of when the promissory note goes into effect within your clients plan go to the Timing screen.
Planning for a Future Payoff
Many advisers also choose to model a future payoff event, where any remaining balance on the promissory note is paid off at a defined point in time.
To do this, go to the one-time pay off option in the bottom right of your promissory note screen and select (+) Add One Time Payment select whether you would like to do a payoff or a specific amount and then go to the timing screen and choose when that event should occur.
Reviewing Cash Flow and Trust Activity
Once the promissory note is in place, advisers can review how the strategy affects their clients cash flow chart to do this go to Cash Flow > Year View:
See in the client cash flow, the incoming loan payments from the trust
Trust expenses related to the promissory note under the expenses sections
Withdrawals from trust accounts to fund payments in the investments section
The remaining balance of the note over time in the debts section
This step is particularly useful for validating that the strategy is financially sustainable and confirming that you have set everything up correctly.
Note: Don't forget that you can also check the charts for the Trust to see how money is flowing out of this entity.
Demonstrating the Estate and Legacy Impact
Go to Overview > Legacy
Choose the option to compare your two scenarios. Base Plan and your Business Gifting Plan.
One of the most compelling aspects of this strategy is how clearly it can be demonstrated on the Legacy screen.
By comparing the base plan to the IDGT strategy, advisers can show:
Reduced estate tax exposure
Increased wealth transferred outside the taxable estate
How assets ultimately pass to heirs
This visual comparison often helps clients understand the long-term value of the planning recommendation more effectively than numbers alone.
Final Thoughts
By modeling an IDGT business gifting strategy alongside a promissory note, advisers can clearly illustrate outcomes, address client concerns, and support more confident decision-making.
For additional guidance or questions on modeling these strategies, advisers can request support directly within Voyant.
Click the name of your client in the top right of the dashboard and from the dropdown select request support.
Watch
To see a visual example of how you might model a similar scenario please see the video below.