Historic Opportunity in Charitable Planning: Boomer Business Owners in TransitionSubmitted by American Endowment Foundation on June 11th, 2018
By Phil Cubeta, CLU®, ChFC®, CAP®
Today, in gift planning we have an historic opportunity - if we can seize it through canny collaboration among professional advisors, national gift funds, single issue charities, and nonprofit gift planners, and the respective associations to which we may belong.
Boomer business owners (think of them as The Rotarians), are reaching an age at which they must exit the business, which has been their baby and their identity. As they exit, they are very good prospects for a donor advised fund (DAF). (Selling some or all the business in a DAF can save the 20% tax on capital gains.) More importantly, these are civic leaders and boosters who want to do more than take their name off the trucks, and their building, and put it on a gravestone. They want to go from "success to significance," set a good example for their heirs, and as one said to me, "make my last stand." They made their money in town, will die in town, and often want to give locally. They see giving generously, post-exit, as stepping up rather than stepping down or stepping aside. They step up into leadership and set an example for their heirs.
Once the business is sold in the DAF, the donor/client can go on to fund any charity, including the itty-bitty grassroots ones who could not possibly accept a business interest, or commercial real estate as a gift. They just don't know how, and there is too much liability.
Thinking "big picture" - what will happen and is happening is that local operating business wealth is being channeled to the national gift funds who are gearing up big-time in this market. So are some local community foundations. How this money gets reinvested locally in charities the donor loves, is what interests me, personally.
The financial mechanics are complex. So let me tell you point blank who comes out ahead.
- Advisors increase assets under management as some of the business is sold inside a DAF and some outside.
- Advisors sell life insurance to replace gifted assets.
- Tax and legal mavens do consulting and documentation.
- Valuation firms and business exit strategists do well.
- National gift funds increase assets under management, and so do alert community foundations who can compete in this market.
- Local nonprofits who cannot accept closely held C-corp interests, commercial real estate, or S-Corps - who find this whole topic daunting, can and should benefit as funds leave the DAF headed back home to the local community where the business owner lives and leads.
Who loses? And how to find your role in making this work:
- Local charities lose if they wait around hoping for a grant from a DAF. You have to be in the game pre-exit, if you hope to be in the game post-exit. Your role now is to identify possible prospects for this and convene advisors.
- Advisors lose if they wait around to hear about this a year from now, after the donor has exited, and has the money all locked up in a fund the advisor cannot manage. Your role today is to learn more, talk to your clients and prospects, and network with local nonprofits who are in dire need of your expertise.
- Attorneys lose if they fail to see that, given where the estate tax thresholds are today, the legacy game has changed from saving estate tax and maximizing net to heirs, to creating a successful and thriving life in which the business family does wonderful things for not only themselves, but also for the community. That is the new legacy planning. If you call that "soft," your own head is getting soft. This is among the most technical and multi-dimensional planning there is. Estate planning, business exit planning, retirement planning, investment planning, family dynamics planning, and planning for social impact. The rest of us, those of us who are not JDs, need you in this conversation. We cannot do it without you.
As an entire generation of boomer business owners transition out of their firms, we as client advisors or nonprofit gift planners have a historic opportunity to help clients and donors, increase assets under management, move money to charity, and make our communities a better place to live for those who come after us.
As the Sallie B. and William B. Wallace Chair in Philanthropy at The American College, Phil Cubeta, CLU®, ChFC®, CAP® is responsible for the Chartered Advisor in Philanthropy® (CAP®) curriculum. Prior to joining The American College, Phil served as Chief of Staff for The Nautilus Group, a service of New York Life Insurance Company providing estate, business, and philanthropic strategies to affluent clients through 200 of the company's top agents.
Phil's original training was in English Literature, Williams College, BA; Philosophy and Psychology, Oxford University, MA; and English Language and Literature, Yale, MA, M.Phil. He also holds the Masters of Science in Financial Services (MSFS) from The American College.He serves on the Planned Giving Advisory Board for The Carter Center (established by Jimmy and Rosalind Carter). He is a past President of the North Texas Council of PPP.
At American Endowment Foundation, we look forward to helping you transition your clients from "success to significance." Contact or call us at 1-888-660-4508 and let us discuss how American Endowment Foundation and donor advised funds can help.