Gift Opportunities of Business Owners

People who own their own businesses (95% of all U.S. businesses are family owned) have special tax, financial and estate planning concerns. But they also have exceptional prospects when it comes to making gifts to the charitable organizations they support.

Why do business owners have excellent gift opportunities? First of all, they have the flexibility of “dual-donor status” – they can make gifts personally or direct that the business make contributions. Many have considerable wealth tied up in their businesses: More than $2.5 trillion is currently held in “private” stock, which is typically highly appreciated. Business owners generally have significant income tax and estate tax problems, many of which can be alleviated through charitable deductions. Finally, business owners have a double-duty motivation. Philanthropy can help worthwhile causes, but it is also good for business! Here are some gift possibilities:

Gifts of company stock. One popular gift plan is to contribute some shares in the donor’s business, after which the corporation would redeem (buy back) the shares from the charity. Gifts of stock often make sense when the business owner is anticipating the sale of his or her business, or prior to an initial public offering. Shares of private stock can also be contributed in a trust that provides lifetime income to the owner.

Gifts involving employee stock options. Companies often grant key employees options to purchase company stock as a form of incentive compensation. These options may not be attractive as gifts to charity, either because they are nontransferable during life (incentive stock options) or because their exercise produces ordinary income (“nonstatutory” stock options). On the other hand, employees who acquire stock by the exercise of stock options may find it to be a good time for charitable gifts, either outright or in trust (timing is everything in planned giving!).

Gifts of excess group life insurance. Here is a special gift opportunity for executives whose companies provide them with group life insurance. Generally, if an employer provides an employee with more than $50,000 of group term life insurance, the employee is taxed on the excess coverage each year. But if a qualified charitable organization is named as the sole beneficiary of any portion of the coverage in excess of $50,000, the employee will not have to pay income tax on that portion of the coverage. It’s a simple gift as well – you need only fill out a form.

Gifts prior to selling a business. Corporation owners who are considering selling their companies can make gifts of stock, expecting that we will sell our shares to the eventual purchaser. The owner/donor can deduct the fair market value of the stock (and avoid capital gains taxes), so long as we are free to sell or not sell the shares. Donors can keep a “right of first refusal” as a condition of the gift, requiring us to offer the stock for resale to the donor at fair market value before seeking other buyers.


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