Helping business owners exit with a family legacy
Many families in North Carolina own businesses that are embedded in their community and closely associated with their family’s identity and local impact. You likely work with clients who own a family business and may be considering a sale.
Selling a family business is not only a financial event – it is deeply personal and public at the same time. Strategic charitable giving options can help clients prepare for an eventual exit from the business, define their legacy, and achieve meaningful tax advantages.
Philanthropy, when structured intentionally before a sale, can serve as a bridge between the family business and its legacy.
First, any gift of closely held stock from a business must be made before a sale or a legally binding agreement to sell. Raising the idea of strategic charitable giving with your clients in the early stages of succession planning is critical to appropriate planning.
Incorporating a charitable component into the sale of a family business allows the family to continue any commitments to the community through charitable giving even after the business is closed, preserving its legacy.
A donor advised fund is an ideal way to make a charitable gift of closely held stock before a sale and preserve flexibility around the timing of contributions to charitable organizations. Shares in the business could be transferred to the DAF well in advance of any potential transaction, leaving that portion of the proceeds in the DAF when the business is sold. A DAF provides the family with flexibility to continue supporting the community, engage children or grandchildren in charitable giving, and carry on their legacy.
The tax advantages of this type of transaction are meaningful.
By donating a portion of closely held stock to a DAF or other charitable fund before a legally binding sale process begins, donors are eligible for an income tax deduction based on the stock’s fair market value at the time of the gift (subject to AGI limitations). Later, when the business is sold, the proceeds on the shares held by the charitable fund are not subject to capital gains tax and are available for charitable purposes.
Comparison: Traditional Sale vs. Sale with Planned Charitable Gift
The team at the North Carolina Community Foundation is here to assist you in supporting your clients.
While you remain responsible for facilitating transactions and coordinating with other advisors, our Development and Donor Engagement teams can facilitate conversations that go beyond the corporate, legal, financial and tax aspects to help shape the family’s philanthropic goals.
Our team can also help host family meetings, provide community needs assessments, and introduce best practices for multigenerational philanthropy.
Please reach out anytime. It is our pleasure to help you serve your clients through all stages.
This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.