Why Are More Advisors Encouraging Clients to Gift Closely-Held Stock?

Giving stock is an important strategy for clients to consider — especially private business owners. These gifts of stock can help business owners achieve charitable goals and avoid estate tax. They can provide additional benefits when implementing a business succession plan for clients interested in transferring their business to the next generation.  

Advisors Can Offer Confidence in a Changing Landscape

In light of recent legal developments and pending tax law changes, more and more financial and estate planning advisors are encouraging their clients to consider implementing gifts of closely-held stock to a fund at the Community Foundation or other public charity.

Not only does this strategy benefit the client, but it also opens up opportunities for professional advisors to guide clients through complex decisions — offering expertise that secures financial and philanthropic goals. Advisors who stay ahead of these strategies will be better equipped to offer solutions that protect their clients’ legacies.

These Developments Could Have Big Impacts on Clients  

• The estate tax exemption sunset set to occur at the end of next year continues to loom large. Without intervening legislation, a lot more of your clients will need to wrestle with the reality that their estates likely will be subject to a hefty tax, causing many clients to rethink both the timing and methods of transferring business interests. Making gifts of closely-held business interests to a fund at the Foundation is likely to become more attractive to a broader cross-section of your client base. 

• Valuation has always been a critical factor in any type of tax or estate planning. This is certainly still the case with substantiating the value of closely-held business interests that your clients transfer to a charity. And now, the additional wrinkle presented by the Supreme Court’s decision in Connelly v. United States makes things even more interesting. The Connelly decision impacts the way business interests are valued for estate tax purposes. In Connelly, the Supreme Court held that life insurance proceeds indeed ought to be included in the valuation of a company without offsetting the redemption obligation. This could translate to higher taxable estates for your business owner clients, creating further incentive to leave a portion of closely-held stock to charity. The decision is also a reminder that careful planning can help avoid pitfalls. 

The Bottom Line

By advising clients to donate closely-held stock, you’re helping them reduce estate taxes while also enhancing their charitable impact. Many donors discover they can give up to 20% more to their chosen causes due to the potential to eliminate capital gains tax, according to Schwab Charitable. This increase in donation power will delight your clients and ensure that their philanthropic goals are met, all while creating lasting benefits for your community. With the legal landscape shifting, this strategy is becoming even more critical for forward-thinking advisors and their clients.

Please reach out to Jeff Polino, director of philanthropic planning, at jpolino@racf.org to learn more about how our team can help as you work with your business owner clients to navigate legal and tax developments that could significantly impact future plans for their privately held companies.