Hello! I’m Joe Williams and I’m the President of the Plains Region of The Signatry. My role is to meet with donors to help them maximize gifting opportunities through strategic giving plans. One of The Signatry’s main goals is to maximize charitable giving. A major way way we do this is through giving non-liquids gifts, including portions of closely held businesses. There are some challenges that come with this, but that’s where The Signatry steps in.
When selling a business, the owner or owners will face the highest tax liability they will ever face. That liability is locked up the moment they sign the purchase agreement. Often, the owners are in a rush to complete the sale, and the only thing they do is calculate their taxes. In other words, the owner is simply told how much he or she will have to pay.
What if there were a better way? What if the sale of the business could be used to increase giving while decreasing taxes? In reality, the solution is pretty simple. If the owner donates some of his or her ownership prior to the sale, they can deduct the fair market value of the shares donated. Taxes go down. Giving goes up. However, the magic of the gift of ownership interest must occur before the purchase agreement is signed or the opportunity will be lost.
In addition to these benefits, if the stock is declaring distributions, it has the ability to fund the business owner’s giving on an ongoing basis. We find that business owners seek to monetize the gift as quickly as possible. That gift may be monetized by (a) having the company buy back the interest back, (b) selling to family members or key employees, or (c) a third party sale. Once the money monetizes, there is even more to give!
However, the process of gifting such an interest does have 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 interest, there are documents to be collected. Often a review of bylaws, shareholders agreements, and financial statements will be needed. 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. The power of this opportunity is that the business owner can take that tax savings and increased giving and create a family foundation. This means they can support causes they care about, get their kids involved, and impact the world. At the Signatry, we have business owners whose giving will literally go up ten fold!
I welcome the opportunity to discuss these new opportunities with you further. I am always inspired by the stories of how God can transform our earthly resources into tools for eternity.