From a planning perspective, illiquid shares provide a challenging dilemma. Restricted shares can generate a high balance sheet net worth and high estate value, but oftentimes without the corresponding liquidity to fund the shareholder’s estate tax liability. So why not transfer the shares into a trust? While a trust may seem like an ideal solution to exclude the valuation from the shareholder’s estate, companies often limit the ability to transfer shares. If a transfer is allowed, there may be significant gift taxes associated with gifting the shares to a trust outside the shareholder’s estate.
Source: Term Life Insurance and Pre Liquidity Planning