Gifts of Closely Held Stock

Have you asked your client what a gift of closely held stock could do for their community? Nebraska’s business owners invest a great deal in the establishment and building of a successful business, and financial resources are only part of the story. In many respects, the building of a family business is the epitome of the American dream – created with equal parts of opportunity, blood, sweat and tears.  When it is time to transfer ownership – whether to create income for retirement or to pass on an inheritance – business owners have special opportunities to give something back to their hometown.

Personal Deduction with Your Corporate Dollars

This is a dynamic opportunity for a donor to help their hometown with a gift of corporate stock. Transferring shares of their corporation’s stock to the Nebraska Community Foundation for the benefit of their hometown can provide the following benefits:

• Provides the satisfaction of making a gift today that can be invested in their hometown.
• Creates an immediate personal charitable income tax deduction.
• Bypasses capital gains taxes on the gift of stock.
• Avoids declaration and double-taxation of dividends.
• Allows the corporation to buy back the stock.
• Reduces estate taxes and settlement costs.

How This Plan Works

A business owner who owns the majority of the stock in a family business or corporation wants to help build his hometown’s endowment fund with a gift of stock from his corporation. The owner transfers shares of his stock to the Nebraska Community Foundation valued at $100,000. As a result of this gift, the business owner becomes entitled to a $100,000 charitable deduction on his personal tax return. Plus, he avoids the capital gains tax on the appreciation of the corporation’s stock.

The Nebraska Community Foundation sells the stock for $100,000 cash.  The gift of stock leaves the business owner in full control of the corporation and without any personal costs.

Finally, the $100,000 cash is placed into a hometown endowment fund that will assist worthwhile projects into the future.

Key Issues with This Gift

• If the gift value exceeds $10,000 the charitable gift deduction amount must be determined by a qualified stock appraisal.
• There can be no prearranged obligation for the Nebraska Community Foundation to sell the stock back to the corporation.
• Corporate repurchase should occur two weeks to two months after the gift is made.
• Corporation’s liquidity is needed to repurchase the stock.

Variations of This Plan

• Gift the stock to a Charitable Remainder Trust to receive a lifetime income.
• Make a gift of stock prior to selling the company to receive a personal tax deduction and avoid capital gains taxes.
• Use a combination of the above variations to transfer a corporation to heirs.