Advisors – charitable strategies to help your clients

Gifts of Appreciated Business Interests

Estate planning, real estate and business succession planning lawyer Gary Chapman, Bose McKinney & Evans, CPA Bill Owen, BGBC Partners LLP, and CPA and wealth planner Jeff Yu, Column Capital Advisors, guided a client couple, a joint real estate and LLC owner, in the donation of their interest in a limited liability company prior to the sale of the commercial real estate owned by the LLC. This resulted in their client avoiding most—if not all—capital gains tax liability associated with the increase in value of the LLC, as well as providing them with an income tax charitable deduction for the full, fair market value of the donated LLC units.

Here’s how the donation happened:

One for the Money (or initially the estate plan) 

When Jeff Yu introduced the client to CICF several years ago, they established a “future fund” as part of their estate plan to be funded upon the second to die. The fund was structured as one part donor-advised fund for each of the client’s adult children, one part designated endowment fund with named charitable organizations to share in the annual distribution of a certain percentage of the overall assets to come to the fund, and one part interest area fund focused on their charitable passion.

Two for the Show

Fast forward a few years and the client requested to begin funding the donor-advised portion of their CICF charitable fund and assume the role as fund advisor and grant-maker currently. No problem! This flexibility is built into CICF funds.

Three to Get Ready

One of the early funding sources for the client’s fund consisted of their donation of the proceeds from the sale of a commercial building they owned outright. According to Jeff Yu, that deal happened so fast there was no time for a pre-sale gift, which could have helped them avoid having to pay capital gains tax on the appreciated value of the building (although the client still received a charitable income tax deduction for the charitable gift of the proceeds from the sale). Through their team of advisors, the client learned of the additional tax benefits of a pre-sale gift that would net more money for them to grant out to charity.  The client was ready for next time –knowing they may decide to sell additional real estate that they held in an LLC. Rather than first sell and then donate sales proceeds, they would instead gift a portion of the LLC to their donor-advised fund ahead of the sale and get both the charitable income tax deduction for the fair value of the gifted interest and avoid capital gains tax liability (as well as net investment income tax liability if applicable) on the fair market value of the LLC interest donated to the client’s donor advised fund.

Four to Go! (Here’s How It Worked)…
  • In the summer of 2018, CICF accepted the assignment of the client’s donated LLC units into CICF Charitable Holdings, LLC, the single member LLC that has the same 501(c)(3) public charity status as CICF, which CICF established to be able to quickly accept gifts of real estate and closely held business assets.  CICF charges no additional fee for accepting and liquidating closely held business interests.
  • The gift agreement provided that CICF would add the proceeds of the sale of CICF Charitable Holdings’ ownership interest in the client’s LLC to their DAF at CICF and that they would indemnify CICF Charitable Holdings against any cost of owning the business interest prior to sale.
  • A purchase agreement for the real estate owned by the LLC was entered into several months following the LLC unit donation. Just prior to the real estate closing in spring of 2019, the LLC redeemed CICF Charitable Holding’s LLC units in exchange for a tenant in common interest in the real estate equal to the value (as previously determined by the IRS-required qualified appraisal) of the donated LLC units, so that the client’s partner and the LLC could effect a 1031 tax deferred exchange with its share of the proceeds and continue on.
  • The redemption and real estate closing followed the gift of LLC units by approximately eight months. CICF Charitable Holdings was required to acknowledge and provide to the client Part IV of IRS Form 8283 , as well as file Form 8282, Donee Information Return, with the IRS.
  • Congratulations and THANK YOU to the team of professional advisor: Jeff Yu, Gary Chapman and Bill Owen, who worked together to ensure an extremely tax efficient charitable gift to their client’s donor-advised fund. Through their care of their client, they will now have the opportunity to grant a greater amount of gift proceeds, which include a significant amount of avoided taxes and well as income tax deductions back to charitable causes that they care about through their donor-advised fund.
For more information regarding gifts of business interests, read here.

If you have questions about charitable gifts of business interests or any other questions we can help you with, please feel free to give us a call.  We are here to help, whether your questions relate to a potential gift to CICF or not.

Mary Stanley, JD, CAP®
senior director and legal counsel for charitable gift planning
MaryS@cicf.org
317.634.2423 x319

Sarah Weaver, JD
senior gift planning advisor
SarahW@cicf.org
317.634.2423 x510

Brittany Rayburn
Hamilton County Community Foundation director of development
BrittanyR@cicf.org
317.843.2479 x302

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