The Power of Philanthropy – Winning the Trifecta
Philanthropy can be a powerful tool for founders and owners of privately held businesses, and their families, if it is thoughtfully considered prior to selling their company. Its utility extends well beyond the simple construct of giving back. Rather, it allows for substantial income and estate tax mitigation, creates an excuse to be able to engage adult children and their families in financial discussions and provides an opportunity to support organizations whose mission, vision and values align with your passions.
As a starting point, to what exactly are we referring when we discuss winning the Philanthropy Trifecta? It includes 3 forces whose combined attributes are seemingly counter-intuitive. They include:
- Tax mitigation
- Family education, unity and legacy
- Empower and perpetuate core family causes
Optimizing tax mitigation strategies, in advance of the sale or partial sale of a private business, can save tremendous amounts of capital from being diverted directly to the U.S. Treasury. Privately held stock can be given to your own Charitable Remainder Unit Trust* (CRUT) or Donor Advised Fund (DAF) before a transaction and thereby skate by the capital gains tax liability on those shares and create a charitable contribution tax deduction. In both cases, you will be able to maintain effective future control of the investment management decisions and future grant making decisions.
Engaging children and future generations is a common challenge for successful matriarchs and patriarchs pursuant to the sale of a family business. The presence of a current or future family foundation, created through a DAF structure, provides the framework for educating and engaging your heirs. Your family foundation can be used as a central component for educating your children and grandchildren about investing, investment portfolio management, and grant making. Further, if adult children are included as board members of the family foundation, they can work directly with you to create a
corresponding mission statement around the use of the foundation’s resources. In addition, a family member can be employed by the foundation to help oversee its ongoing administration and family members can be brought together for annual meetings.
Finally, a family foundation creates the opportunity to directly support community causes with which your family feels passionate. Hence, it leaves a solid legacy for both your family and the community, and it creates inherent power for your family within the community.
Combined, all of these benefits create the Philanthropy Trifecta. Start planning early and be a winner!
*A CRUT would be the logical philanthropic solution in the event that you need additional income from the sale proceeds over the course of your retirement.
Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.