Many closely-held business owners and their advisors may not be fully aware of the advantages of giving shares to a donor-advised fund at DuPage Foundation well in advance of any external discussion about a potential sale of the business. This is especially true for a business that has operated for many years and has accumulated significant, unrealized capital gains in its valuation, likely to be heavily taxed at the time of sale.
With prudent planning, the gifted shares will be free of capital gains at sale time, allowing the proceeds to flow into the donor-advised fund, ready to be deployed to meet the business owner’s charitable goals. That owner also benefits because they’ve reduced the value of their taxable estate. This can have huge repercussions given the anticipated reduction of the federal estate tax exemption slated for 2025.
Remember that it will be important to secure a proper valuation of the business at the time the owner makes a gift of shares in order to comply with IRS requirements for documenting the value of the charitable deduction.
Critically important to successfully executing this strategy is to ensure that your client avoids any preliminary discussions about sales, let alone negotiations, before consulting with advisors, including looping in DuPage Foundation early on. Otherwise, your client might get caught in the IRS’s step-transaction trap, a risk with any pre-sale gift to a charity of real estate, closely-held stock, or another alternative asset.
If you routinely advise owners of closely-held businesses, and if you like to go deep into tax law, you might enjoy reviewing the issues related to the business itself supporting charitable causes, totally unrelated to its eventual sale.
DuPage Foundation can be an invaluable partner in helping guide business owner clients through a pre-sale preparation process. Please reach out to a member of our Advancement Team when you have business owner clients who would like to explore the idea of potentially giving a portion of their business to a donor-advised fund or other type of charitable fund. We can work alongside you and your clients to help optimize their exit and maximize the resulting sale proceeds and benefits.