Estate Planning During a Tender-Offer Window: Timing and Valuation

A late-stage startup announces a $100 million tender offer in Q3 2025 at $38 per share. Employees and existing investors can sell 15% of their holdings. The tender establishes a clear, observable share price for the first time since the Series D valuation two years ago.

A founder-employee with 800,000 vested shares wants to use the tender timing to both partial-diversify and fund a dynasty trust. She sells 120,000 shares in the tender for $4.56M cash. She simultaneously gifts 200,000 shares to a dynasty trust funded pre-sunset.

The gift valuation benefits from the tender:

Tender price $38 per share establishes a recent arm’s-length price.
Appraisal can reference the tender for DLOM determination.
Post-tender common may have reduced DLOM (more observable secondary market), but the $38 price is a known benchmark.
Appraiser applies combined 25-35% discount (less than 40% pre-tender) reflecting increased marketability.

Compared to gifting the same block 6 months before the tender (when DLOM might have been 35-40%), the post-tender gift uses slightly more exemption but captures a higher baseline valuation. For planning purposes, the tender window can be an efficient time to fund trusts.

What a tender offer does for valuation

A tender offer is a structured secondary sale where the company (or an outside buyer) offers to purchase shares from existing holders at a specific price, during a specific window.

For pre-IPO companies, tenders often appear:

Every 12-18 months for late-stage companies.
At Series C and beyond as an employee liquidity tool.
As a signal that the company is maturing toward potential IPO.

The tender establishes:

A documented arm’s-length price for the stock.
Proof of a secondary market (even if limited).
Evidence of investor interest in the stock at specific pricing.

These are valuable data points for IRS valuation purposes.

The impact on DLOM

The discount for lack of marketability (DLOM) is based on the idea that private stock cannot be freely sold. A tender offer partially contradicts this: holders can sell a portion of their stock at a defined price during the window.

However, tenders have limits:

Capped percentages (typically 10-20% of holdings).
Time-limited windows (weeks, not continuous).
Specific buyer or pool size.
Requirements for eligibility.

So the tender does not fully remove the “illiquid” characterization. DLOM declines from 30-35% (no tender history) to perhaps 20-25% (tender recently concluded) but remains material.

For planning, this means:

Gifting before a tender gets larger DLOM (good for exemption leverage).
Gifting during or after a tender gets smaller DLOM (less exemption leverage on the same share count).
But post-tender gifts can be documented with more certainty (tender price as benchmark).

The timing sweet spot

A planner funding estate vehicles around a tender has three windows:

Pre-tender (60-120 days before announcement). Largest DLOM possible. Appraiser uses older benchmarks. But no recent benchmark to reference; appraisal relies more heavily on methodology.

During tender (announcement to closing). Tender price observable. DLOM still substantial because tender is capped. Can reference tender price with appropriate discount.

Post-tender (60-120 days after closing). DLOM compresses slightly. Tender completed at documented price. Strong documentation for gift valuation.

Most planners prefer post-tender funding because:

Tender price is a concrete data point.
Appraiser’s methodology is more defensible.
Risk of IRS challenge is lower.
Valuation discounts can still be applied, albeit smaller.

Tender as accelerant for other strategies

GRATs. Funding a GRAT near a tender captures the tender-indicated value. If the company IPOs at higher price, excess appreciation passes to heirs.

IDGT sales. Installment note pricing can reference tender as fair value for the sale. Documentation is strong.

SLATs. Gift valuation leverages tender benchmark. Appropriate for funding before the 2025 sunset.

CRTs and CLTs. Charitable valuation for deduction purposes reflects tender reality.

Dynasty trusts. Multi-generational trust funded with recently-valued stock; strong valuation documentation for the grandchildren’s generation.

A tender-day planning scenario

Founder ages 52 holds 2M vested shares. Tender announced at $40/share, closing in 30 days. Company at $3B valuation post-tender.

Pre-tender gifting strategy (before tender announcement):

Gift 250K shares to SLAT at pre-tender appraisal: 40% discount on $40 = $24/share.
Gift value: $6M.
Exemption used: $6M of remaining.
Expected appreciation: stock goes to $80/share at IPO in 12-18 months.
Post-IPO value in SLAT: $20M (250K × $80).
Transfer leveraging: $6M of exemption transferred $20M of eventual value.

Post-tender gifting strategy (after tender closes):

Gift same 250K shares to SLAT at post-tender appraisal: 30% discount on $40 = $28/share.
Gift value: $7M.
Exemption used: $7M.
Expected appreciation same: $80/share.
Post-IPO value: $20M.
Transfer leveraging: $7M of exemption transferred $20M. Lower exemption leverage than pre-tender.

Comparison:

Pre-tender: 3.3× leverage ($6M exemption → $20M).
Post-tender: 2.9× leverage ($7M exemption → $20M).

Pre-tender is better on pure math. Post-tender is better on valuation defensibility.

Coordinating tender participation with gifting

A common structure: the founder participates in the tender (partial sale for liquidity) AND funds estate vehicles concurrently.

Example: founder sells 200K shares in tender for $8M cash. Simultaneously gifts 250K shares to dynasty trust. Cash from tender pays:

Diversified investment portfolio.
Year’s income tax on other income events.
Reserve for estate-planning costs and emergency.

The tender provides the liquidity to support the broader planning. Without the tender, founders often lack cash to execute complex planning (legal fees, appraisals, diversified portfolio buildout).

Concerns about “pre-arranged” treatment

The IRS can argue that a tender coinciding with gifting constitutes a “pre-arranged” transaction, potentially recharacterizing the gifted stock as if the donor received the tender proceeds and gifted cash.

Defenses:

Donor does not participate in the tender for the gifted stock. The trust (or its beneficiaries) makes independent decisions about the trust’s tender participation.
Timing of the gift is coordinated but not contingent on tender participation.
Documentation shows the gift was motivated by estate-planning objectives, not short-term liquidity.
Trust beneficiaries (children, grandchildren) may actually have Trust Protector discretion over whether the trust sells in a subsequent tender.

For clean documentation: fund the trust at least 30-60 days before or after the tender, not during the tender window itself.

The valuation appraisal at the tender point

A qualified appraiser preparing a valuation for gift purposes at the tender point:

References the tender price as a recent arm’s-length transaction.
Adjusts for common-stock vs preferred pricing if tender is at preferred price.
Applies DLOC (common has no control).
Applies DLOM (common still illiquid despite tender).
Considers capacity constraints (tender allowed sale of only X% of holdings).

Typical appraisal structure:

Tender price: $40/share.
Common adjustment: preferred pricing to common = 20% discount, so common is $32/share.
DLOC: 20% on common = $25.60/share.
DLOM: 20% on common = $20.48/share.
Final appraisal: $20.48/share, or roughly 49% discount to tender price.

This is aggressive but defensible with proper documentation. Actual discount may be 35-45% depending on facts.

Comparison: gift valuation with vs without tender

Scenario	DLOC	DLOM	Combined	Headline-to-gift ratio
No recent tender, no secondary market	20%	35%	~50%	50%
Annual tender in progress	20%	25%	~40%	60%
Active secondary market, regular tenders	15%	20%	~30%	70%
Pre-IPO (S-1 filed)	15%	15%	~27%	73%
Post-IPO, in lockup	0%	15%	15%	85%

Frequently asked

Can I gift during a company tender if I’m a Section 16 insider? Yes, but Section 16 and insider trading policies may restrict timing. Consult counsel on 10b5-1 compliance and Form 4 reporting.

Does the tender price substitute for a qualified appraisal? No. A qualified appraisal is still required for gifts over $5,000. The tender price is a data point; appraisal is a methodology.

What if the tender occurs at a significantly lower price than the last round? A below-market tender can indicate a valuation markdown. Appraisal should consider this. May reduce effective valuation for gift purposes.

Can I use a tender price for pre-existing estate plans (existing SLATs, etc.)? Yes. Trust valuation for subsequent years can reference the tender. Ongoing trust administration uses updated valuations.

Do I need to disclose my gifting in the tender application? Generally no; tender participation and gift planning are separate transactions. Company’s tender facilitator may have specific eligibility requirements.

Next step

If your company is announcing a tender offer, discuss estate planning coordination with counsel 30-60 days before the tender window. Choose whether to fund pre- or post-tender based on DLOM tradeoffs and documentation preferences. Obtain a qualified appraisal timed to your chosen funding date. Consider simultaneous tender participation for personal liquidity and trust funding for wealth transfer.