While cash (after-tax dollars) and publicly traded stock (pre-tax dollars) are the simplest way to give, we are well into a season of tremendous wealth transfer via sales of closely held, privately owned family businesses. Such liquidity events can be a huge opportunity for private Christian schools.
Following WW II, the Greatest Generation came home and started making babies and businesses. With the legislative creation of the S corp in 1958 and the Limited Liability Company in 1977, American families have built incredible privately held wealth. That wealth is very much in transition as many thousands of family businesses are entering into liquidity events. You likely have a number of family-owned businesses with children and grandchildren at your school.
Opportunity exists under the law for a faithful family to gift a portion of a business to a donor-advised fund before closing a sale. Then, at closing, the family sells what it has retained for itself, and the charity (donor-advised fund) to which stock was given sells to that same buyer. The family owes taxes on what it keeps, but little to no tax is paid on what the charity sells. Then, the charity distributes what it has received into the business owner’s donor-advised fund. If your school has educated an owner on this opportunity, the odds are very high that you will be a beneficiary of that advice.
The owner gets a big tax deduction for what it gifted to charity before closing. That helps the owner’s family offset the tax liability owed on what it sold to secure its long-term financial future. Depending upon the value of the entire sale, this technique can save vast amounts of taxes and capitalize on the owner’s family’s ability to give for an extended period of years. It is called a “Give then Sell,” meaning the owner gifts to charity and then sells the business.
Far too often, business owners intending to sell are unaware of this technique, so they “Sell then Give,” i.e., they sell the entire business, and then, out of their charitable hearts, they make a large cash gift to charity. In doing so, they must recognize taxable gain on the entire sale price.
Again depending upon the size of the deal, a “Give then Sell” can result in hundreds of thousands or millions of additional dollars going to the Lord’s work (potentially your school) instead of the U.S. Treasury. The IRS stands to lose trillions of tax dollars through these “Complex Gifts” over the next twenty years, so these gifts are subject to scrutiny. But, a proven process for them is solidly in place and just might be relevant to your future.
In support of The Collaborative, consulting on this opportunity is available at no cost via Jay Bennett ([email protected]) or Tyler VanEps ([email protected]) at the National Christian Foundation Twin Cities. There are a select few sponsors of donor-advised funds who have this expertise, but multiple options can be provided.