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Giving in Advance of a Business Exit/Transition

A senior executive at a California-based company likely to be sold in the next few months owned significant interests in the LLC as one of the initial employees.

An arts and culture enthusiast, the executive wondered if a portion of the sale could be used to support a music enrichment program and cultural society, some of his favorite charitable causes.

He spoke with his CPA who suggested it may be possible to use the LLC interests as a charitable contribution. The CPA and executive discussed the contribution with Fidelity Charitable, and upon close review of the facts and circumstances, determined that the contribution of interests could be accepted since a sale was yet not certain to happen.

A few months after the contribution of interests, a buyer was identified and a sale was completed. Fidelity Charitable participated as a seller and the proceeds were funded to the executive's Fidelity Charitable donor-advised fund where they could be used to recommend grants to his favorite charities.

The executive was entitled to a fair market value tax deduction and no capital gains tax was paid when the donor-advised fund sold its interest in the company, allowing the executive to give much more to charity than he previously thought. Additionally, the executive dealt with one charity, therefore one set of paperwork, to accomplish the transfer of the business interests as simply and efficiently as possible.

Business Exit/Transition giving process diagram

1 During negotiations, material terms of sale cannot be final before involving charity in sale of company.