Planning for your business—and for charitable giving

Estate planning expert Neil Kawashima, AB’93, offers advice on coordinating your business and charitable plans.

If you’re a business owner with philanthropic goals, consider coordinating your succession and charitable planning, suggests Neil Kawashima, AB’93, a partner in the Chicago office of McDermott Will & Emery LLP.

Business succession planning involves deciding who should own and control a business following the current owners and decision makers, says Kawashima, an expert in estate and gift planning and business succession planning who also focuses on philanthropic matters. The transfer can occur on a specific date, such as a retirement, or after an event, such as a death.

Business owners who want to coordinate charitable giving along with planning for business succession typically consider their family goals first and then consider how to provide for charity. Owners should contact the appropriate advisers early in the process. Advisers will take into account the business structure (corporation, S corporation, partnership, LLC), the anticipated liquidity stream from ownership of that property, income and death tax considerations, and whether a charity would have the ability to dispose of the interest in the business if it were contributed.

It is important to distinguish “ownership” from “control,” Kawashima says. In the first instance, an individual or select group of individuals may ultimately oversee and make decisions about a business, but the economic benefit would pass to a broader class of owners. In contrast, an owner may want to transfer an interest in the business to charity but have a select group of individuals retain control. In these situations, advisers work to reconcile an owner’s charitable goals with restrictions on business ownership by certain charities. They must analyze governance issues, corporate law issues, tax planning, and family dynamics.

While the process can be complex, it also can be rewarding, Kawashima says. “I have been involved in successful situations in which owners of private businesses know that they will be selling their business in the near future and contribute an interest in their business to a charitable organization or a specialized charitable trust prior to the sale.” When the sale occurs, the donor receives an income tax charitable deduction for his or her contribution and avoids capital gains tax on the contributed interests. This type of charitable planning also can be combined with wealth transfer planning to avoid or reduce death taxes.

Charitable giving is a personal subject, and every situation is different. Contact your advisers and the Office of Gift Planning for advice.

Tip: In many situations, a family business will be the largest financial asset in the owner’s estate.