In my last blog, I wrote about how some business owners are dramatically increasing their giving. They are doing so by giving away part of their business interest.
There are several benefits. Because they are lowering, their overall tax bill, they have more to give. In addition, the stock, if it is declaring distributions, has the ability to fund their giving on an ongoing basis. We find as well that many business owners seek to monetize that gift as quickly as possible. That gift may be monetized by (a) having the company buy the interest back, (b) selling to family members or key employees, or (c) a third-party sale. Obviously, once the interest monetizes, there is even more to give.
On the other hand, the business owner needs to realize that the process of gifting such an interest has some requirements. Typically, the business should have little debt, and of course should be profitable. It should have no outstanding claims, litigation, or liens. To donate the interest, an appraisal of the business will be needed.
Likewise, to donate the interest, there are documents to be collected. Often a review of bylaws, shareholder agreements, and financial statements will be necessary. Each of these must be reviewed to make sure there is nothing which prohibits the deduction.
While the process may seem difficult, the significant opportunity for giving is worth it. We have seen business owners whose giving will literally go up ten times. The power of being able to give out of one’s net worth just seems to prompt more giving.
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Published November 8, 2010
Topics: Giving Strategies