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Charitable gifts of S-corp stock

Nearly half of U.S. corporations are classified as S-corporations, representing assets of in excess of $3 trillion.

Do you work with clients who have a large portion of their wealth tied up in S-corporations? As these clients grow older, they may be looking for business transfer solutions or ways to diversify these highly-appreciated holdings in a tax-efficient way.

Perhaps you have suggested charitable-gift strategies to your clients as a way of reducing their tax bite (reduced income tax and avoidance of capital gain taxes, and estate taxes). Including a Donor Advised Fund solution offers greater flexibility than an outright gift to charity in managing and distributing this wealth over successive generations. And, if you manage investment, it could enable you to convert these illiquid assets into managed assets.

However there are two considerations in contributing gifts of S-corp shares to charity:

• most charities are not equipped to accept and liquidate gifts of hard-to-value assets such as S-corp shares in an efficient manner.
• the tax treatment on gifts of S-corp shares is different. As with gifts of other assets, the donor gets an immediate charitable deduction based on the fair market value of the shares given and avoids capital gains tax. However, when a charity sells the gifted S-corp shares, the charity owes taxes (unrelated business income tax (UBIT) on the capital gain, calculated on the donor's cost basis. In most cases, this tax could reduce the charity's net proceeds by 35%.

AEF has a tax-wise solution that reduces the effective UBIT rate by almost 80%.

If you are interested in learning more about this and other tax-wise solutions for your client to create a family legacy, please give us a call. 1-888-440-4233