$16 Million IPO Windfall: How to Calculate GRAT vs. IDGT vs. Step-Up Basis Under 2026's $15M Estate Tax Exemption
The scenario: your company just IPO'd and now you have two tax problems, not one
NerdWallet calls the year your company goes public an "enormous income year," and for good reason. If you're holding a mix of RSUs, ISOs, and NSOs, the income tax bill alone can be staggering before you've even thought about estate planning. But here's what most people miss while they're scrambling to cover an AMT bill from ISO exercise: the same event that just created a massive ordinary-income problem also just created a massive estate-planning problem — and the two decisions interact.
Let's ground this in real numbers. Say your post-IPO position looks like this:
- 200,000 RSUs vesting at $40/share = $8,000,000 in ordinary income this year
- 100,000 ISOs, strike price $2, now worth $30 = $2,800,000 AMT preference item
- 150,000 NSOs, strike price $5, now worth $30 = $3,750,000 in ordinary income on exercise
- 50,000 founder shares, potentially QSBS-eligible, worth $1,500,000
Total position: roughly $16 million. You've got a real income tax bill due this year, and — separately — a real estate tax exposure sitting on your balance sheet the moment the lockup expires.
The federal number that changed: $15 million, not $13.61 million
Under the current law locked in for 2026, the federal estate and gift tax exemption sits at $15 million per individual ($30 million for a married couple using portability). That's meaningfully higher than the $13.61 million figure floating around in older projections — worth confirming with your own advisor, because it changes every calculation below. If you want the background on how we got here, the 2026 exemption breakdown walks through it.
But — and this is the part people skip — state estate tax exemptions haven't moved with the federal number. Massachusetts taxes estates above $2 million. Oregon starts at $1 million. If you IPO'd into a company headquartered (or if you're domiciled) in one of these states, your $16 million position could trigger state estate tax on $14 million of value even though you owe zero federal tax. This is the "across federal and state jurisdictions" problem — and it's exactly why generic advice built for a single-state, single-exemption world breaks down fast.
Four strategies, one $16 million position, ten-year horizon
Here's the comparison that actually matters: what happens to this position over 10 years under four different approaches, assuming 12% annual growth (aggressive but plausible for a young public company) and the current IRS 7520 rate of roughly 4.4%, which has been drifting down alongside mortgage rates after a soft June jobs report pushed Treasury yields lower.
| Strategy | Mechanism | ~10-yr transferred value | Est. federal estate tax | Key trade-off |
|---|---|---|---|---|
| Hold until death | Step-up basis at death | $31.05M in estate | ~$6.42M (40% of $16.05M excess over $15M exemption) | No capital gains tax for heirs; full estate tax exposure |
| Direct gift now | Use lifetime exemption | $31.05M outside estate | $0 federal estate tax | Uses $10M of your $15M exemption; heirs inherit carryover basis, not step-up |
| IDGT (sale to trust) | Sell $10M asset for a note at 4.4% AFR | ~$21M removed from estate tax-free | $0 on the transferred portion | Grantor pays income tax on trust earnings; needs liquidity for note interest |
| 2-year GRAT | Zeroed-out annuity trust | ~$1.6M passes gift-tax free | $0 gift tax used | Small transfer per dollar, but zero downside if stock underperforms the hurdle rate |
This is the kind of analysis Voritanel runs for you — so you don't have to build the spreadsheet yourself, recalculate it every time the 7520 rate moves, or guess at your own growth assumption.
Why the GRAT number looks small (and why that might be the point)
Notice the GRAT transfers far less than the IDGT in this table. That's not a flaw — it's the trade-off. A GRAT is built for uncertainty, and freshly IPO'd stock is about as uncertain as it gets. Lockup expirations, insider selling waves, and post-IPO volatility routinely produce 30-40% drawdowns in the first year. If your stock drops instead of growing 12%, the GRAT simply returns the asset to you with no gift tax cost and no wasted exemption. The IDGT, by contrast, locks in a note obligation regardless of how the stock performs — if the stock craters, you could owe interest on a note secured by a asset that's worth less than the debt.
If you're less than 12 months past IPO and still inside a volatility window, the "smaller but safer" GRAT math might beat the "larger but riskier" IDGT math — even though the raw numbers above suggest otherwise. Our deep dive on when a GRAT beats an IDGT walks through the volatility-adjusted break-even in more detail.
The QSBS wrinkle nobody's spreadsheet accounts for
If any portion of your position is founder or early-employee stock acquired before the IPO and held over five years, it may qualify for the Qualified Small Business Stock exclusion — up to $10 million (or 10x basis) in capital gains excluded entirely, federally. That changes the "hold until death vs. gift now" math dramatically, because the capital-gains cost of forgoing step-up basis disappears for QSBS-eligible shares. If $1.5 million of your $16 million position is QSBS-eligible, gifting those specific shares now (rather than the RSU or NSO shares) is close to a free lunch — you transfer future growth out of your estate without creating a latent capital gains bill for your heirs. Our companion piece on IPO stock and the QSBS exception breaks down the mechanics on a $12 million position, and the framework transfers directly to yours — but your numbers will differ based on which shares are actually QSBS-eligible and your exact basis.
Why this week's interest rate environment matters more than usual
Mortgage rates ticked slightly lower this week (Monday, July 6) after a weaker-than-expected June jobs report — and that same downward pressure on Treasury yields is pulling the IRS 7520 rate down with it. A lower 7520 rate directly helps GRATs (lower hurdle rate to beat) and IDGT installment sales (lower AFR on the note), which means this is a genuinely favorable window to lock in either structure if your numbers already point that direction. Rates could reverse just as fast on the next data print, so the window isn't guaranteed to last. For the mechanics of how rate movement shifts these numbers, see how falling rates shift the GRAT vs. IDGT break-even and the full July 2026 rate breakdown.
Who actually helps you run this: DIY software, CPA, EA, or estate attorney?
NerdWallet's guide to small-business tax services draws a useful line between DIY software, enrolled agents, and CPAs — and the same tiering applies here, just at higher stakes:
| Option | Typical cost | Good for |
|---|---|---|
| DIY estate calculator | $0–$500 | Straightforward estates under ~$5M, single asset class, no trusts |
| Enrolled Agent (EA) | $150–$350/hr | Complex income tax from ISO/NSO exercise, AMT planning |
| CPA | $200–$450/hr | Coordinating income tax and estate tax timing in the same year |
| Estate planning attorney | $5,000–$15,000 flat (GRAT/IDGT drafting) | Trust structuring, GST planning, multi-state jurisdiction issues |
The problem: a $500 DIY calculator can't model a GRAT's zeroed-out annuity math or an IDGT's grantor trust income tax pass-through, and most attorneys bill by the hour for scenario modeling before you've even decided which structure to build. That's the gap between "too simple" and "too expensive" that leaves most IPO employees running on gut instinct instead of actual numbers. You can model this for your specific situation at Voritanel before you pay an attorney to draft anything.
One more liquidity wrinkle: the AMT bill has to get paid from somewhere
If you exercised those ISOs, you likely owe AMT this year — and NerdWallet's research on 0% APR credit card approvals is a reminder that there's no universal "safe" answer for financing a short-term tax bill without selling stock. Just as there's no single credit score that guarantees card approval, there's no single "right" estate strategy that ignores your cash position. If funding a GRAT or an IDGT note payment would force you to sell shares you'd rather hold (or trigger a taxable event you're trying to avoid), that liquidity constraint should shape which structure you pick — not just the raw growth-versus-tax math.
Run your actual numbers before the window closes
Every calculation above depends on assumptions that are specific to you: your actual basis in each share class, whether any shares are QSBS-eligible, your state of domicile, whether you're married and can use portability, and the 7520 rate on the day you fund a trust. Change any one of those and the "best" answer can flip entirely.
If you're sitting on concentrated IPO stock and trying to figure out whether a GRAT, an IDGT, a direct gift, or simply holding for step-up basis makes sense for your $16 million (or $6 million, or $30 million) position, run the numbers for your specific situation at Voritanel — with your actual basis, your actual state, and today's actual 7520 rate, not a rounded hypothetical.
Sources
- A Guide to Small-Business Tax Services — NerdWallet
- Delta Amex Cards Offer Valuable Travel Benefits This Summer — NerdWallet
- What Credit Score Do You Need for a 0% APR Credit Card? (Based on Real Applications) — NerdWallet
- Mortgage Rates Today, Monday, July 6: Slightly Lower — NerdWallet
- The Employee’s Guide to IPO Tax Planning: How to Manage Your ‘Enormous Income Year’ — NerdWallet