IRS Blesses Estate Administration Exception for Family Business Stock Options

Full analysis

In a Private Letter Ruling issued June 18, 2026, the IRS found that a stock option allowing a closely held company to buy shares from co-owners' revocable trusts after death did not trigger self-dealing penalties under the private foundation rules — even when a private foundation (a charitable entity controlled by a family) could potentially benefit from those same trusts. The key was the "estate administration exception," which shields certain transactions inside an estate or revocable trust from self-dealing restrictions if the trustee has power to sell the property, the trust receives fair market value, and the foundation ends up with an asset at least as liquid as what it gave up. For families who co-own a business and have set up a private foundation as part of their charitable giving, this ruling confirms that buyout arrangements structured at fair market value during the estate settlement period can be structured without triggering costly excise taxes — but the timing and liquidity conditions must be carefully met.