Pre-Sale Charitable Strategies – Brandon Davis, National Christian Foundation

Brandon Davis – National Christian Foundation (NCF)

[00:00:00] Good afternoon. Thanks, uh, for joining us today. Uh, this is a monthly series that we have for business owners. Uh, we call it Charting Opportunities. Um, thrilled to have, uh, another special guest today. Uh, Brandon Davis. Brandon’s the president of, uh, the Carolinas in here for National, uh, Christian Foundation.

Um, and, uh, he’s going to take some time to talk about Philanthropy. Uh, [00:01:00] the, not only the, the benefits of, of giving, which are obvious, but, right, there are other taxable benefits, and if you plan, um, An exit from a business the right way, there can be a lot of, uh, additional benefits other than just, you know, what you’re doing too.

So, um, we’ve got a presentation for you today. I’m going to pepper in a few questions. Um, Brandon, you want to tell us a little bit about yourself and the company? Sure. Absolutely. Yeah, so National Christian Foundation, uh, 501c3, non profit, grant making foundation. Um, We exist to help people develop their giving strategy and be efficient and effective in their charitable giving.

I’ll talk a little bit more about NCF, but we got about 30, 32 offices around the country, about 350 colleagues around the country. And so we’ve got a large full time staff focused on helping donors, we call them givers. Uh, professional advisors and the folks they, um, [00:02:00] advise and then charities and nonprofits themselves, kind of their donors, their constituents kind of come alongside all three of those different constituents and help them develop a giving strategy and be efficient and effective in their pursuit of charitable giving both now during life and then legacy giving as well.

So yeah, all things we can kind of get into. So, at, at what point exactly do you get involved in the conversation, right? So, some, some business owners are just getting started, right? Entrepreneurs, and they’re starting their business. Some are, are growing it. Some are, you know, maintaining it. Yep. Some are looking to exit.

Um, at what point does it make sense for, for you to start having conversations about doing some of this? Yeah. Yeah, that’s a good question. And, and the easy answer is, you know, in a sense, the earlier the better, right? So, As with any planning, the earlier you’re in on the idea, the planning, the development of the idea, the better.

So, we always love to kind of be early in the process. Now, that said, there’s kind of this tension, this balance, if you’re [00:03:00] starting or growing a business, and you want to be charitable with the business, some of which we’ll get into as we go through the discussion. There’s a sometimes a desire to give the business to charity or a portion of the business to charity while it’s still small But that can limit the amount of kind of charitable deduction tax deduction so it’s kind of this tension you want to kind of run numbers and think through the strategy of You kind of give a business early and have it grow in the hands of charity But there’s benefits to that if you want to be charitable with it versus The idea of kind of waiting until there’s more value in the business.

That’s typically what we see so Somewhat to answer your question. Typical is, um, as someone is a little more down the path on the idea of growing the business, value is, you know, built up in the business, and maybe they’re thinking about an exit of some sort or recapitalization, you know, maybe not right away, but in the near future or a few years down the road.

That’s a, that’s a pretty typical time when we find that business owners are thinking about it. Thank you. Hey, this business has really grown. It’s kind of done more than I kind of ever anticipated in [00:04:00] terms of value. Um, that can be a good time, you know, just practically speaking that we enter the conversation with the advisor, with the non profit, with the donor.

Um, as they think about making a, the starting point of making a charitable gift with their business. So, logistically, the gift is made, you know, DAF, right? Donor Advised Fund. The gift is made to a DAF. Talk about kind of the main benefits and how that works and what it does and Yeah, let me, I’ll jump to this and kind of just to give a little bit of a graphic, we’re going to see if our clipper works here.

Um, it works, it’s just a matter of, uh, we’ll get to it, we’ll skip, we’ll come back and talk about the, about NCF that we talked about. Um, yeah, so just graphically speaking, um, donor advised funds, what we’ll do here is kind of build on a couple of principles, right? So talk a little bit about a donor advised fund, talk a little bit about the giving of appreciated assets, and then kind of tying those concepts together, maybe get into the idea of what does it look like to make a business interest gift.

So um, so yeah, kind of when you tie those principles together, donor [00:05:00] advised fund, appreciated securities, and then the idea of, well, you know, business or land or real estate, something like that. So a complex. Non cash asset, what does it look like to make a gift, charitable gift or something like that. So, backing up, starting the idea of, you know, what is a donor advised fund?

In the kind of very simplest of terms, as we kind of build the principles a little bit. Donor advised fund, sometimes we’ll call it like a charitable checking account. So if you’re familiar with this, forgive the review, but just to kind of make sure we’re all on the same page here. Uh, donor advised fund, kind of like a charitable checking account.

In the simplest of terms, the donor advised fund sponsor, NCF, is a 501c3, non profit, charitable entity. You give cash. Let’s simple. You give cash. You write a check to the National Christian Foundation to your donor advised fund. You’d have a name on the fund. We’ll put a number on the fund, kind of like a checking account.

You make a, instead of a deposit, you make a gift, charitable gift, into the donor advised fund. We issue you the tax receipt. We’re the charity. We give you the tax receipt. Now, money has now been irrevocably given to charity. It’s sitting in an account called a donor [00:06:00] advised fund. And then you have, as the fund holder, we would call it, you have advisory rights over the donor revised funds.

You advise us what charities you’d like to make a grant to. Church, Red Cross, Humane Society, Samaritan’s Purse, Disaster Relief. Whatever the passion, the cause, and the organization is, you’ll make a request to us to issue the grant. As long as it’s an organization that we can legally grant to and that fits with our granting.

Uh, parameters, we’ll make that grant on your behalf from the fund to that organization. So you know, kind of graphically speaking, again, cash, write a check to NCF, money goes in the fund, we issue the charitable receipt, money sends to the fund, it can sit there for a day, a week, a month, a year, ten years.

There’s a lot of flexibility with a donor revised fund, but you know, let’s say you want to support. You make a request to us to support your church or mission agency or disaster relief effort, whatever, we’ll issue that grant as quickly as we can. So that’s kind of functionally [00:07:00] how a donor advised fund works, to kind of build some of the principles.

Sure. So I can give cash. If I’m a business owner, I can gift shares or stock of my business. That’s right. Real estate. Um, so I guess it’s going to depend on what I’m gifting to the DAF as to what happens when it’s there. Does it just sit there until it’s granted out to wherever it’s going to go? Or how is it invested in the meantime?

Yeah, that’s right. So, um, Again, look back at the simple side. Cash has been given and we’ll get into some of the, I think, more esoteric and appreciated securities. I think that’ll be a good conversation and path to go down. But for starters, on the investment or growth side, so different families, different, um, advisors, different, uh, individuals will have different strategies with their donor advised fund.

Some people it’s, you know, cash in, I’m gonna, I’m gonna write a check, I’m gonna let this sit there for a relatively short amount of time, or maybe I’m gonna make a, a donation of, of appreciated securities. You know, you and your team are gonna look at their portfolio and say, hey, here’s an appreciated stock.

We’re ready [00:08:00] to kind of turn, turn over some assets in the portfolio. This would make a great charitable gift of appreciated stock. We’ll go through more of that example of that. It goes in the donor advised fund. Sometimes people want to just grant the charity right away. Clear the donor advised fund out and not maintain a balance.

Great. We love charitable giving. We love granting. We want to support organizations now. And we want to encourage people to do that as fund holders. On the flip side, there are some people Uh, they feel more called to a strategy of, um, keeping a balance in the fund, maybe giving off the growth or having the fund in place for five or 10 years and kind of granting the balance down.

So you can kind of seek to grow the balance in the fund, um, if that’s part of your strategy. And there’s kind of really a couple of options. Uh, you can sit in cash and just kind of earn a small interest rate, so it’s going to grow slowly. We have investment pools on our platform that people can choose from.

It’s one option. And if the balance is 300, 000 or higher, The donor, the fund holder, can request that we work with you and your firm to actually invest and grow, [00:09:00] seek to grow the balance of the fund from an investment standpoint, at which point you would be investing it for return based on the time horizon and the risk tolerance of the The nature and the desire of the donor for the fund.

Yeah. So, kind of a couple different options as to how to grow or seek to grow the balance. Yeah. So, just curious, right, you’ve got your business owners that are gifting from the pre sale planning standpoint. There’s also the, right, the capital gains element of gifting appreciated securities for that. Um, also you’ve got the bunching strategy, uh, because of the, the high standard deduction, right?

Trying to bunch, uh, you know, charitable gifts into one year so that you can itemize. Just curious, are you working more with business owners or just individuals or from a firm level? Who do you guys work with the most? We have something like close to 30, 000 fund holders across the U. S. So, you know. The answer is kind of a little bit of everybody, right?

There are some, you know, we call it everyday givers where they’re kind of using the fund cash in cash out, [00:10:00] you know, writing checks or making grant requests to 20 different organizations just on the kind of a cash basis. That’s great. But yeah, some of the donors or givers that were most structured and able to really serve from a high value standpoint, um, are business owners, landowners, real estate owners, people that have, um, these kind of assets on their balance sheet.

Um, and so, yeah, a lot of business owners, which is certainly a specialty of NCF that we’ve kind of developed over the years, for sure. Yeah. Yeah. Um, I would say, so, hopefully that makes sense on a donor advised fund kind of structure, generally how it works. So, again, you know, basic, basic idea of like cash in, cash out.

Now, you know, we kind of take this principle and say, well, if you can put cash in a donor advised fund, hold it in the fund, grow it, or grant it right away, whatever your kind of strategy is. and make grants out of the charity, the question kind of becomes, what else could you, back to one of your earlier questions, what else could you put in the fund?

Well, the answer is, lots of different things, actually. So, if cash [00:11:00] works and works well, what about the idea of, like, appreciated securities? Literally, stocks, bonds, mutual funds, ETFs, just kind of, marketable securities. So you’ll hear every organization that you support or know, um, or get grant, uh, donation requests from.

They’ll pretty quickly tell you like, Hey, cash is great. Nobody will turn down, no, no non profit will turn down cash. It’s great. But a lot of times they’ll tell you, Hey, don’t forget to talk to your financial advisor. about the idea of appreciated stock that might be in your portfolio, right? So, um, I mean, just kind of quickly, again, kind of building some of these principles before we get into the, you know, the guts of kind of how a business interest gift would work.

Come back to that. Actually, I’ll touch on this. Assuming this slide doesn’t advance. Um, the concept here is, we kind of looked at this and said, Donor revised funds work great, we’re going to start looking at appreciated assets that can be given to charity. Uh, but here, what this says is, what do people own on their balance sheet and what do we give?

So on the, What’s that? Make sure I got this right. On your, [00:12:00] the right side. Your left. Excuse me. I never do that right. On your left. This is what we have. And so the statistics are something like 7 to 10 percent of what’s held on people’s balance. Think about what you own is in cash. Um, the rest of it is in non cash items.

Primarily, stocks, bonds, mutual funds, closely held business interests, land, real estate. There are other things. Intellectual property rights. Mineral rights. I mean, there are other things that can fall in that category as well. But. But. But. The, the vast majority are stock bonds, mutual funds, ETFs, I guess you have to add now, um, uh, land, closed sale business interest land real estate, raw land, uh, investment real estate.

So that’s kind of makes up the rest of the balance sheet. So that’s kind of what we have on our balance sheets, what, what clients have, but how do we give, we take that, you 10 percent of cash. And that’s how we do up to 95 percent of our giving. We take that little bit of cash, that’s how we do all of our generosity, our charitable [00:13:00] giving.

And so, um, the rest, the 5 percent typically, historically, is non cash. And a fair amount of that actually is things like personal property and goodwill. So, um, historically speaking, statistically speaking, people are vastly giving cash, not giving non cash. We kind of looked at that and said, well, if a donor advised fund works, which it does, If give the idea of like giving just some even as simple as appreciated stock in your portfolio works What else could people give why don’t we use the rest of that balance sheet that you know?

93%. Why don’t we use that to actually do a lot of our charitable giving? So that’s kinda where some of the ideas come from. Uh, in terms of kind of, you know, why use appreciated assets? So, you know, quick example, uh, there’s kinda the idea of unlocking the, the, the 93%. So again, as I, as I said, a lot of it is stock bonds, mutual fund marketable secur.

Um, uh, business interest, land, real estate. But some of the other ones are listed up there. Life insurance is an [00:14:00] interesting example. Um, retirement plans, that’s more from a legacy kind of, uh, testimony giving standpoint. Those are really highly taxed assets. Those are things that can make great gifts to charity.

Sometimes during life, when you’re over 70 and a half. Um, so again, just to kind of, the idea of listing here things that you might not think about from a charitable giving standpoint that can make really great assets. Can I, can I play devil’s advocate and say what, what can’t? What’s on the, what’s on the do not give list?

What can’t be given? Yeah. Um, everything’s kind of half joke, half not. We kind of half jokingly, half not say anything that can be valued can be given. And there is some truth to that. I mean, again, the idea of like Intellectual property rights or mineral rights, you know, there’s some kind of less common things that we’ve come across that can be given.

Things that can’t be, so a lot of times we’ll get questions about, you know, a gun collection, uh, art collection, a collection, something like that. It can be given to charity, it can’t be given effectively to a donor [00:15:00] advised fund. Because the idea is, and we’re kind of getting deep into the tax code, but it is a question that comes up frequently.

Somebody’s got an art collection, they want to kind of, their idea is they want to give it to their donor advised fund, it can be liquidated, create assets in their donor advised fund, and then grant out to lots of different charities. Concept is great, however, artwork in the hands of a donor advised fund, artwork in the hands of National Christian Foundation doesn’t receive full value of deduction.

I mean, technically it can be done, but it’s just not the right place. Artwork given to a museum who’s going to use it as artwork, they can, you can deduct at full fair market value. Artwork in the hands of the National Christian Foundation, unless we’re going to display it on our wall in our office, which we’re not, um, doesn’t get as much benefit.

So, I mean, the idea of like personal property, I mean, they can get into like gold and, you know, Things that are treated as personal property, but your typical questions really come from like collections, artwork, uh, things like that. So that’s, that’s where it gets, again, the idea is right, but the, the functionality of it, the logistics of it actually don’t [00:16:00] work.

Does that make sense? Yep. Yeah. Um, so, again, just building kind of quick examples as we kind of get into some of the, um, the, uh, Kind of core concepts, particularly with the business. We already talked about this, but this is kind of what just the flow or the concept of the idea looks like for, and this is simply, um, marketable security.

So you’ve got stocks, bonds, mutual funds in your portfolio. So it’s the idea of, rather than writing a 10, 000 check to charity, getting the, it’s essentially after tax, and yes, you’ll get the tax deduction, but the cash is just going to be after tax, full basis, um, uh, donation to charity. So it’s great. Again, no charity or even donor advised fund is going to turn down.

It’s great. We’d rather people be charitable with cash than not charitable at all. So, so hear that. But on the other side, over here on your right, is kind of how the process works for the idea of giving appreciated securities. So rather than a 10, 000 check, it’s 10, 000 worth of value of [00:17:00] appreciated stock in the portfolio, which you’re Good friends at Portus will look at your portfolio and pick the exact right option.

One of the examples I remember from my days in the financial planning world, uh, uh, here locally, Piedmont Natural Gas was about to be acquired by Duke Energy. This goes back a number of years, uh, but, you know, uh, Piedmont Natural Gas is appreciated in value. It’s about to be bought. Everybody’s going to receive You know, capital gain, uh, treatment, when it’s bought, there’s gonna be a, I think it was a cash deal with, with, um, with Duke Energy.

And so, I remember one donor in particular was like, you know, I don’t want to incur the tax, and I want, I’m gonna make charitable gifts anyway. Like, let’s give all of this Piedmont Natural Gas stock that I’m holding in my portfolio to charity. And just, I mean, I love that idea, because, why does that work?

Um, when you give a mark, appreciated marketable security like that stock in Piedmont Natural Gas, in this example. Uh, the value, you get the full value of the deduction when given a charity, you get, you receive the full value, market value of the deduction [00:18:00] as a tax write off, as a tax deduction. So the charity will issue a receipt to you that will essentially have the value in it or there’s specific rules how to calculate the value.

Charity gets that, 10, 000 in this example. 1, 000 a basis. You maybe bought it years and years ago for 1, 000. That’s your basis in it. If you sold it, all of 9, 000 in this example would be taxable to you. Well, in the hands of charity, most stocks, or C corporations, they are not taxable to charity. Charity gets all these shares of Piedmont Natural Gas in my example, they sell it.

Charity owes no tax. You as an individual, or your client, gets a 10, 000 deduction, right? A receipt from the charity. And the only person that gets cut out is Uncle Sam. And so, you know, for all the faults that the U. S. may have, one of them is not how we treat charitable giving, right? Our tax code is encouraging charitable giving so that non profits all around the country are doing great work to help people in the U.

1. and [00:19:00] even overseas, internationally. And so we have this great, uh, ability, this great, uh, policy in our code, written in our code to encourage charitable giving. And so what happens in that example, 10, 000 goes to charity, the donor gets a 10, 000 deduction, no taxes paid, and 10, 000 is available to charity to do the great work they’re doing for whatever individuals or causes they’re supporting.

And so, all this to say, that’s, um, that’s exactly how kind of that process works. So again, building on the concept of, you’ve got a donor advised fund, um, That can hold money, issue the receipt, make grants out to charity. How can you fund that? Donor advised fund. Cash, write a check, great. But we would say all day long, if you’ve got appreciated assets in your portfolio, fund your donor advised fund with that.

Because that’s so much more efficient and effective for charitable giving. Um, and you get to kind of choose where the proceeds go. Rather than sending a tax bill to the government, and the government chooses where those proceeds go and what programs they need to fund with it. [00:20:00] So, um, so those are kind of some of the core fundamental concepts that start to build together to say, well, how does it, how, you know, how might this work in addition for business owners?

So that’s a little bit kind of where we, we start to head. Make sense? Yeah. Sounds good. Yeah. So, next, the next logical step then, keep going? Yeah, keep going. Next logical step is, okay, got a donor revised fund, that’s great. tool, platform, uh, you know, appreciate the idea of giving appreciated assets to charity.

That works great. That’s really efficient, um, and effective. If I hold cash on my balance sheet, if I have, if I hold a lot of stocks, bonds, mutual funds on my balance sheet, I’m also a business owner. What about my business? And so many years ago we had donors and NCF started looking at this and saying, well, yeah, if all these concepts, concepts work so well together, like we should lean into more the idea of giving closely held business interests.

And that’s kind of, we’ve developed an expertise in that, uh, over the years. And so that’s kind of where you get into the idea of, what does it look like to give a [00:21:00] piece of a closely held business, or land, or real estate, or investment property, intellectual property right, you know, mineral rights, all those kind of more esoteric, privately held, complex assets is what they’re called.

What does it look like to give those to charity? Before we dive into that, just a pause for any questions. Makes sense so far. Building blocks. Makes sense so far. If you have any questions, go to denverbostsfunds. com or appreciate securities. On the same page. Makes sense.

Alright. So how, what does it look like to do a business interest gift? Let’s see if, so we got a couple examples here. First one is, you know, privately held business, which is kind of as business owners, kind of what we’re here to talk about. Um, just for, for kind of, um, scope and scale, I, I skipped over some of the slides earlier, but, but NCF has been, um, fortunate to, to help donors give $27 billion into their donor revised funds and over $20 billion out to charities.

So scope and scale like we’ve just been. [00:22:00] Uh, really, uh, uh, entrusted with and capable and able to come alongside a lot of donors to give away a lot of money, which is fantastic to watch. Um, as it relates specifically to complex assets, again, uh, closed sale business interest land, real estate type assets, complex assets, NCF’s done.

Yeah, 3, 000 complex asset gifts worth over 6 billion. So, I mean, a couple points on this to say, um, number one, um, a lot of people have done it, and it has generated a lot of value for charity, which is fantastic. We love it. That said, um, uh, there’s still a lot of people that don’t know about it, right? So we’re constantly kind of out there telling the story of, hey, this is a really unique, effective, Um, thoughtful way to give money to charity, to be generous, um, and, and not enough people know about it.

Not enough, even financial advisors and planners and attorneys know about it, and, and [00:23:00] certainly not a lot of charities themselves know that this can be done. And so we’re constantly kind of telling that story to kind of all three groups to say like, Hey, this might be something you want to explore. So a lot of it happens, but there’s a lot more that’s able and capable of being done kind of out there with these complex assets.

But yeah, kind of logistically, how does this look? And so we, you know, case study wise.

We’ll get there.

Go slide, go.

Job light, talk time. There it goes. Oh. Bye. There we go. Alright, so case study, I mean again, you know, We have lots and lots of examples, but you know, we kind of make these generic, and so, um, So these are kind of based on, you know, examples of things that we’ve seen and done. So, let me get the details in front of me so I’m not having to look backwards here.

So this was a, yeah, closely held business, and so, um, Lots of different business entities exist out [00:24:00] there. This is what, a C corporation. You know, there’s C corporations, there’s F corporations, there’s LLCs, there’s limited partnerships. There’s different varieties, and we can kind of get more into the discussion of what that looks like.

This one’s fairly straightforward and, uh, a really, a really effective way to give. So this is a C Corporation, and again, just kind of running through, um, this is an example way back up to my Uh, so, it’s, um, a 16 million dollar Organization, company, that’s, that’s, they’re thinking about selling, right? So, um, this isn’t, it, it’s not already for sale, it’s not already under a, a contract to, to be sold.

It’s not legally bound. This is kind of in the planning stages. Hey, we’re thinking about selling the company. We’re starting to get unsolicited offers for our company. We know we’re going to have a transition in ownership or management or whatever coming up down the road. So we’re looking at doing a, a planning scenario.

So company’s estimated at 16 million, uh, next line there, fair market value, uh, 14. 4 million. after the valuation discount. So the idea here [00:25:00] is, um, if you sell the company today, fair market value is going to be 16 million. When you get an appraisal done, which is one of the requirements, not an NCF requirement, not a charity requirement, but an IRS requirement, get a valuation of the company done for purposes of what the charitable deduction would look like.

The appraiser is going to look at those, the valuation expert is going to look at the company and say, Hey, if you’re giving a portion of it to charity, charity doesn’t have the ability to sell it to anybody they want to. They only own a minority interest in the business. Um, once you’ve given them the piece of charity.

It’s not worth 16 million dollars. There’s got to be a discount applied to it. So that’s kind of the concept that’s going on here. We can explore more about that. 16 million dollar total value, 14. 4 million dollar, uh, 10 percent discount is what we’re assuming there. Sorry, so the discount is predicated on the fact that you will So this is, um, putting a couple pieces together.

This is after you’ve made the gift, when you’re [00:26:00] substantiating the deduction on your tax return. You have to have what’s called a qualified appraisal conducted by a qualified appraiser. And so, Any, any valuation expert’s gonna, gonna create a bit of a deduction on the value of the gift if less than the full amount the company has given the charity.

So that’s, that’s what’s going on here. So again, we can kind of explore that more. But, um, doesn’t, it doesn’t affect the, the, the market value of the company. It only affects the kind of paper value of the company for purposes of what piece you might be giving the charity. So these 16 million value, 14. 4 million after a discount is applied to the, Theoretical value of the company.

We’re saying the basis is 2, 000, 000. The idea here is, I mean, a lot of times we get, you know, basis is zero or near zero in a company, right? It was started from scratch 20 years ago and, you know, it’s grown in value like crazy, but the, the, the tax basis in it is zero or near zero. This example, we use kind of 2, 000, 000.

And, and a pretty common scenario is, um, the, the [00:27:00] donor wants to gift 10%, the company. They’re going to sell it and they want to give 10 percent of the proceeds to charity. So, you know, pretty common scenario. We build in some tax rates down here, 37%, 20%, uh, Ordinary, uh, 20 percent capital gain, and then the net investment income tax, uh, we have to bake that in as well.

So that’s kind of the, the scenario that we’re talking about here, just to kind of give an example. And again, this is a C corporation. Uh, pretty common scenario. So, conceptually, how does this look, and then we’ll kind of look at some of the numbers. Conceptual side, the chart looks a lot like a donor advised fund, right?

Again, we’re building these concepts, donor, using a donor advised fund, or in this case it’s kind of a specialized giving fund there in the middle. Uh, and we’re giving an appreciated asset, in this case a C corporation privately held rather than a marketable security. Um, so, 10 percent of the business, 10 percent of the shares, are literally given to charity.

NCF becomes a bona fide owner of 10 percent of the outstanding [00:28:00] shares of the C corporation. And so, all kinds of things go into that. Can a charity own the business, or the legal documents, the, um, uh, the, um, Whatever, legal documents for the business, the um, uh, operating agreement, all those kind of things.

Do they allow for that? Do they have the right things in there? Do they have the right protections for outside investors, or not investors, outside owners? So all those kind of things have to be kind of, dig up the documents. Uh, look at them, our team will look at it, work with you on that. So that’s very common, we do that all the time.

In other words, you’re making sure that you’re allowed to donate the shares. That’s right. And you’re doing all of that research. That’s right. So, because you as the advisor, the client as the donor wants that to all be right. You know, buttoned up documentation, and we as the recipient of the gift charitably want that too, so it’s in everybody’s interest to, um, to make sure all that lines up.

So just real quick, how many operating agreements have you reviewed that [00:29:00] say not allowed? Um, not allowed is pretty rare. Um, what’s more common is it doesn’t have enough provisions in it for outside owners or, you know, we’re an institute, we’d be an institutional owner. So sometimes it’s more the case that The documents have to be modified to allow for outside, outside institutional or non individual type owners.

So that’s common. Um, you know, if there’s multiple shareholders, there has to be some agreement on the fact that, you know, some, some of Shareholder A’s share is going to be given to charity, where shareholder B is not going to give any to charity. And so now there’s going to be three shareholders. Yeah. A, B, and C, NCF.

And so, let’s say operating agreement says that, that it’s, it’s not allowed. Pretty easy to make the change if, as long as everyone agrees. Typically, yeah. So. Okay. And we’re happy to kind of get on the phone and kind of go over that conversation with. Owners, legal counsel, we’ll have our, you know, legal folks involved [00:30:00] as well.

So, as with anything, when you have a conversation about it, kind of, when shareholder B, who’s not doing it and doesn’t get the concept, becomes familiar with the people, becomes familiar with the concept, and what the end result is, or the desired end result is, you know, it kind of takes some of the Pressure off, takes some of the walls down, takes some of the concern down, and typically can be worked through.

Yeah. Yeah. I would say, I mean, to your question of, you know, other, other times it’s more difficult, um, companies that are owned, particularly large companies that have a lot of outside investors, private equity, um, it’s not in any way, shape, or form impossible. It’s just that can be a little more challenging.

Sometimes the documents are a little more complex, um, and there’s a little more resistance potentially to, um, to making changes or making provisions for the A piece of the company to be given to charity. So again, not impossible. Rarely we run into a situation where it can’t be done. It’s just more navigating the individuals or organizations involved.

So yeah, 10 percent of the business given to charity. Oh [00:31:00] yeah, question. Gerald, how are you? Um, what about the recapitalization of the organization? Yeah, so in case you didn’t hear it, the

question was, essentially, do we see a recapitalization of the company? Voting versus non voting shares, um, and does that alleviate some of the concerns? And that’s, the answer to that is absolutely yes. That’s our desired structure, and ours and other organizations like ours that do charitable gifts like this.

Um, we have no interest in operating the company, right? We’re a financial owner, and we want to financially own whatever piece the donor wants to give for purposes of eventually making grants to charities. Operating non profits, right? So that’s the goal here. So we, we want the financial interest, not the operating interest.

We have no business and no interest in operating the company. Um, and so in an ideal [00:32:00] setting, the company would already have voting and non voting shares or again, if, if the conversation is had early enough in the planning stages, um, it can actually be accomplished where that can be recapitalized into voting and non voting.

And so the charity would therefore own non voting chairs, which means economic interest, but not operating interest. There are other elements we have to navigate, um, we can get into, but that’s a common solution and a desired structure from our standpoint, so it’s a great question.

All right, so again, just kind of following our flow chart here, 10 percent is given to charity, gets tax deduction, 1. 44 million, uh, income tax deduction, saving 533, 000 in tax, um, Portion of the gift is sold tax free, meaning there’s capital gain savings as well. And then, getting back to our, you know, kind of conceptual example, 1.

6 million dollars is available in the giving fund when the organization, the company eventually [00:33:00] sells 1. 4, 1. 6 million dollars available for charity, for charitable granting. So again, a lot of numbers there, but just to say, concept, 10 percent goes into the giving fund. Um, there’s no, no taxes paid. This is a C corporation.

This is like marketable securities, even though it’s a privately held company. Um, a little bit of a valuation discount. We talked about that. So the tax deduction, kind of down here in this diagonal, the tax deduction is a little less than 1. 6 million dollars, 1. 44 in this example, because of the valuation discount.

Um, there’s no capital gain tax pay. There’s the deduction to charity. And then when the company is sold, again remember that the actual fair market value of the company is the full 16 million, 10 percent has been given to charity, 1. 6 million dollars in the donor boss fund available to give away charities of your choice.

So that’s kind of the flow chart. Brandon, um, example 60 million company. At what valuation does it make sense to do something like this? Yeah, good question. Common [00:34:00] question. Um, we would say, just kind of economically speaking, uh, particularly with a privately held business, uh, minimum threshold of a gift would be about 300, 000.

400, 000 to 500, 000 would be kind of the minimum threshold. There is no magic to that, other than to say, by the time you have gone through the steps they call these complex assets for a reason. It is a logical process. The steps in the process are clear and line up, but there is just a little bit of time and complexity associated with it.

By the time you have done that, by the time you have paid For your appraisal, um, by the time you paid your CPA or attorney or whoever’s kind of advising the client on the, on the gift. So by the time you’ve paid some of these expenses, the tax benefit of a gift is smaller than that. A complex gift is smaller than that.

Typically, um, kind of outweighs, the cost outweighs the benefit. So, [00:35:00] again, it’s going to depend on the scenario, but, but we would say, yeah, minimum threshold about 300, 000. Uh, maybe even up to that half a million dollar mark. Um, depending on the, the scenario of the gift. Now, that’s, yes, that said, um, everything’s got a caveat.

If you’ve got a piece of, uh, real estate, sometimes real estate gifts can be really clean and a lot simpler and the cost can be a little bit lower, particularly on the, the appraisal and even some of the other costs. So, I’ve seen real estate gifts, you know, investment property or a beach property that’s just going to give the whole thing, you know, to charity.

I’ve seen those work at lower amounts, and so we would always love to help you explore those. But somewhere in that range is kind of what you should be thinking, if that makes sense. Um, example is a C. Is there, um, any restrictions around any other type of business that you have? Do you see all types of businesses?

We do. So there’s a combination of like industries, there’s a couple answers to that question. So industries versus like entity types. So this is an example of a C corporation. So, you know, I’ll move it forward. This is kind of the [00:36:00] flow chart side to look at the numbers side. Um, and so I’ll kind of use this example and then come back to that question.

So, you know, what, what differences might you see? Um, so here, uh, we all, this is kind of an example of like a gif calculator, a gif illustration that our team will do. We always want to kind of level set with. So, we know what to expect. You as a donor know what to expect. The advisor, um, professional advisors involved know what to expect.

So, we just kind of reduce it all down to paper to say, hey, proof of concept. Does this, does this economically make sense and what can we all expect out of it? So, we’ll, we’ll produce a, you know, an illustration, a gift illustration like this. And kind of, we’ll always do the, the, the baseline side. So, baseline, no charitable gift.

So, um, all we’re doing here is saying, look, if you sell the whole 16 million company and, Most people, by the time they’re talking to us, have a charitable intent. So this isn’t really plan A. But just to say, if you gave the company, sold the company, gave nothing to charity, what would the total tax bill be?

So, again, based on the assumptions, we’re not tax experts, [00:37:00] but trying to kind of help the giver, the donor, and the advisor team kind of come up with some calculations. So in this case, 12. 6, 12. 7 million dollars would go to the family, the rest would go to tax. 3. 3 million dollars. So that’s kind of your baseline scenario.

Um, no share, no charitable gift. And then we kind of start to do some comparisons from there. So option one here, sell first, then give, so some to somewhat to your earlier question kind of when does it make sense? And here’s the proof of concept. Economically speaking, when does it make sense or does it make sense to go through the extra steps of the complex gift?

What’s the benefit gonna be? So here, option one is what if I just sell the company first? Know I have charitable intent, know I intend to make a gift to charity. I’ll just use some of the after tax. Cash proceeds from the sale, put those in my donor advised fund, give that charity, call it a day. No problem.

That works great. Here’s kind of the consequence of it. Or here’s what the tax consequence is. [00:38:00] So we know the amount to the family is going to be less, right? They’re giving a portion to charity, so clearly there’s going to be less to the family. But, um, the amount to charity, 1. 267 in this example, is calculated as 10%, it’s a 10 percent gift, but it’s 10 percent the way we look at it of what the family would have received.

Top, top box before there is any charitable gift, 12. 668 million dollars, 10 percent of that is given to charity. Then you get the tax deduction, so we’ll lower the tax bill in that kind of middle option one scenario, uh, 2. 8 million dollars in taxes, that’s the estimate, gotta put my glasses on. And so that’s kind of your scenario, so, so, baseline, no gift to charity, option one, what if I just sell it first?

Give cash after the fact to charity. What does it look like? So maybe, you know, if you have significant charitable intent, that kind of really becomes your baseline, so to speak. Option one. Versus what we’re talking about here, option two. What if I give a portion of the business to charity before [00:39:00] the sale, go through the steps, how much more does charity get, how much does my tax bill go down, how much more effective can I be with my desire to be charitable?

So 6 million dollars in charity, 16 million dollar business, 10 percent gift, like we talked about earlier. Full 1. 6 million dollars available to charity. In this scenario, real clean scenario, C corporation not paying any tax on the proceeds. So then you kind of back into, okay, what’s, you know, what’s the tax bill?

Tax bill goes down from, you know, 2. 8 million dollars to 2. 4 million dollars. And then kind of, in a sense, the 11. 9 in this example of the family is kind of what’s left. There’s nothing driving the amount that goes to family. What do you sell it for? How much are you giving away? How much do you have to pay in tax?

And then kind of the rest goes to family. So that’s kind of the calculation. And then the, the difference line, we say, well, family’s actually a little bit better off. Got a larger charitable deduction. Tax bill was driven down almost [00:40:00] 400, 000. And hey, great news, 333, 000 more to charity by going through these steps.

So we would pause there and say, that’s the benefit to you, family, and to your charitable intent of actually going through these steps. Um, is that worth, is it worth it to pursue these extra steps and to look at the giving a portion of the business before the sale in order to get 33, 33, 000 more in the hands of charity?

The organizations and the causes you’re passionate about. And so, most givers would say, absolutely, like I will go through the extra steps to get that result for the charities and the causes that I’m passionate about. Again, change the numbers, smaller scenario, whatever, basis is higher, whatever. More depreciation, you gotta do, we run all those numbers and say, you know, it’s a, it’s a 50, 000 benefit.

Well, I mean, 50, 000 is not nothing, that’s great. But the extra steps, the extra cost, you know, maybe that’s not worth it. When you’re talking hundreds of thousands of dollars or even millions of dollars in some examples, um, you know, we would say, [00:41:00] and typically donors say, worth it all day long, let’s do this and pursue it.

So in other words, if you want to pay more tax, sell and then give. And if you want more to charity and less in taxes, then give and then sell. That’s the comparison we’re running. And for a variety of reasons that we can get into. Yeah, larger deduction and less, less tax, if any, paid on the amount in the hands of charity.

Those two, among a few other factors, drive the tax amount down, drive up the amount that actually goes to charity. That was the end result. Makes sense. So, and the last thing I’ll say on this kind of page, you know, there’s kind of this, Option three down the bottom from, from here, we’ll kind of run additional scenarios.

So what we said in this example was, if the family says, look, at the very least, I’m going to do option one, I’m going to sell and then give 10 percent of proceeds of charity. I’m going to receive, my family’s going to receive 11. 87 million. I’m great with that. I don’t need to get more. [00:42:00] How much more can we give the charity if, if that’s kind of now my, the number that we as a family are looking to receive out of this from the sale of the company.

So we have kind of this option three down here. It says, well, look, if we hold that constant. How much more can we drive to charity? And the answer is, in this case, you know, 1. 74 million. Which means, if you kind of look at it on the left side, that means giving away just about 11 percent of the company. You can actually give away another percent of the company to charity, um, be the same as option one as a family, and, um, you know, put additional $140,000 in Kansas charity.

Yeah, no, that’s you, you’re already doing the process. Kinda like, and then from there we’ll do additional kind of what if scenarios and we can do a bunch of those, which is, which is kind of fun to look at. Yeah, no, that’s, that’s cool analysis. Yeah. So that’s, that’s what the example was here in this particular case.

Yeah. So I’m sure a lot of questions from there. I would pause there for a second and say a, does that make sense? And what questions does that drive in your [00:43:00] mind? Go for it. Feel free, by the way, to tell me. No, go for it. I presume there’s a time fault here, like I queue 10 percent of my company in a nanosecond before I sell.

Right. Is that true? Um, it, it is, yes. So there’s a, um, it, it’s a little bit of art probably more than science. Uh, so the question was, essentially, kind of, when, how, how late can I get up? When’s too late to get up, or how early versus late in the process should I get up? So, the bright line that we know is, if you’re under a, what’s called a legally binding, You’re legally bound to sell the company.

So a purchase sale agreement is not, um, is legally binding. It’s not a, it’s not, um, unsolicited or whatever, it’s legally binding. That’s too late. Uh, the IRS at that point would say, um, even though you haven’t sold a company, if you, if you don’t have an out, if you don’t have an option not to sell it at this point, you’ve [00:44:00] already essentially incurred the, the gain, the income tax.

And so it’s too late to give it a charity. You don’t get the benefit of giving it to charity before the sale. That’s for sure a bright line. Nobody questions that. The question kind of becomes, how much before that? The IRS will sometimes argue, like, look, if you knew a deal was coming, it was, it was all but a done deal.

They’ll try to fight that. Historically, they have failed in that response. Um, so, so, we’ve had some givers that would, you know, kind of move toward that line. Back to one of my beginning comments. The earlier in the process, the better. As you start planning and kind of demonstrate, like, look, I have charitable intent.

Um, I would also say if, if you believe in the concept and maybe you’re, you’re pursuing a sale, but you believe in the concept without regard to whether the particular sale, potential sale you’re working on, um, is going to go through or not. If you’re convinced of the concept and you want to be charitable and you kind of know eventually the company will, we’ll sell it, we’ll, we’ll [00:45:00] liquidity event.

Um, then that’s a great scenario where it’s like, it kind of, it kind of removes the time element of like. I want to run this up to the very edge when I know, all but know, the sale is going to happen. That’s a great planning scenario. It’s like, I’m going to give this to charity. I think the sale is going to go through.

I think everything is going to go smoothly. But if it doesn’t, I’ve given this portion of the company to charity and I know I’ll sell it eventually. I’m great with that. And in the meantime, we as a charity, we as a non profit, can hold the interest until such time as it sells.

I don’t have a lot of incentive to give a year’s worth of stuff, right? In theory. In theory, whatever I get three years from now is more valuable than what I get. Yes. Right. So yeah, back to our earlier discussion, like if I’ve got a startup and I’m really charitable, do I just put the startup or a portion of the startup in, in the donor advised fund and let it grow there?

So, um, you, you’re constantly having to kind of weigh [00:46:00] that. So here’s what I’d say, there are at least three tax benefits to giving a portion of the business to charity. So one is the upfront deduction, we talked about that. Two is income or distributions on the portion in the hands of charity while we hold it are tax advantaged.

Because we as a charity, even if we have to pay some income tax, which we do, we pay tax at a much, much lower rate than an individual does. So distributions, income, in the hands of charity is, in fact, so that would be one scenario where you’d look at and say, yeah, on the principle it makes sense to wait three years before I give it, because it’s going to increase in value.

However. So the income is going to be more advantageous in the hands of charity. And then third is the capital gain tax upon eventual sale or liquidation in the hands of charity is either not taxed or taxed at a much lower rate. So those are the variables you’re weighing. I didn’t include this scenario in here, but essentially what you’re describing is what we would call a give and hold scenario, where the plan is to actually [00:47:00] have charity own A portion of the business for some time before it’s sold.

And so, the idea there is not only distributions in the hands of charity is advantageous from a tax standpoint. And oh, by the way, you’ve got cash in the donor buys fund to give, to give away. Again, we’re a grant making foundation. There’s charitable intent here. You’ve got distributions to give away to charity all, all those years in between.

Um, what you can also do is, um, and this kind of gets into some, some additional concepts, but 30 percent of your adjusted gross income can be given in non cash assets every year. So we will have some givers that say, hey, it usually works out to be something like 2 to 3 to 4 percent of the company each year to maximize my 30 percent adjusted gross income charitable deduction on non cash gifts.

I actually want to give that to charity every year, and so over the course of 2 years you then get a 10, 15, 20 percent portion of the company in the hands of charity, but you’re not doing it all at once, you’re doing it [00:48:00] year by year. So that’s actually a strategy that some givers will pursue. So again, you’re having to kind of weigh different elements here, but yeah, yeah.

Back to Greg’s example a little bit, which you didn’t touch on, does it make sense, like Greg has a company and he thinks it’s going to explode in value and he’s not close to selling, and he’s maybe in a potential estate tax situation. Does it make sense to give some of the shares of the business and let that business grow and the value grow?

with the death instead of on the balance sheet. And so at that point, there’s no or less a state that should always state taxes on certainly a strategy, um, and comes into play for some, some givers. So yeah, clearly anything you give away, particularly to charity during life is going to naturally lower your You know, taxable estate, therefore your estate tax liability, if you have one.

So yeah, so looking at that in conjunction, so giving during the course of life, um, in conjunction with the idea of kind of a testamentary or a [00:49:00] legacy type gift, you know, at death, in wills and trusts and things like that. So yeah, sometimes, you know, donors, givers will look at those things in conjunction with one another.

Um, one of the comments earlier, if you kind of think about that list of The other 90, you know, how do we tap in that other 93 percent of the stuff that we hold that’s not cash? Uh, one of them listed was retirement assets. So again, 401ks or IRAs are, are given to, you know, family members, um, their, their tax and they have to be withdrawn now in the course of 10 years.

And so, uh, retirement assets are, are generally heavily taxed. They can be estate taxed depending on the estate tax situation and they can be income taxed, uh, or income taxed typically depending on the situation there. And so. That’s one of those gifts we would say, it’s not the same as a gift of a business interest, but if you’re thinking charitable intent and kind of what’s my planning strategy, um, uh, retirement assets can make really great, effective, tax efficient gifts to [00:50:00] charity at death, later in life.

Yeah. So the, the concept of giving the business interests is most of the time it sounds like we’re close to sale, right? So the interest comes into the DAF. It sits there until the sale, and then at the sale it’s funded with the cash and at that point. The grant starts, or if there’s a, you know, a business distribution before the sale, you’re able to gift, or to grant some of those distributions out.

Yep. Um, can you touch on requirements of, hey, I’ve donated into the DAF, do I have to make grants over a certain time period? Is there like a five year, three year? How quickly does it need to start granting out to the actual charities? Yeah, great question. So, with regard to the grants, there are, at least currently, no requirements to.

Send dollars out of your death, uh, donor revised fund. What a lot of people think about is, like, private foundations, which is a whole different animal, Um, uh, they have 5 percent per year, uh, grant requirements. So there [00:51:00] are things out there, there are minimums out there. Donor revised funds do not. Um, currently, at least, current law, have those rules applied to them.

So, short answer, no, there are no requirements. You can kind of leave the money in a donor advised fund, grow it for future granting purposes. Um, and so sometimes we do see that. That, that is some family strategies. Again, statistically, for National Christian Foundation and those that we serve, they, Maybe have legacy granting goals, but they have current, lots of current granting goals as well.

So statistically speaking, we tend to see donor buys, our donors donor buys funds. Um, granting out at a pretty high rate, which, which again, philosophically we love to see. No requirement, but it does happen pretty meaningfully in our case. So, Carson, yes.

Yeah. Is this understanding? Uh, nothing we know of. Um, [00:52:00] donor revised funds have grown significantly. Question being, um, is there anything coming down the pipe that, that we know of? Answer, short answer, no. Donor revised funds have grown significantly. popularity, and usage for good reason. They’re great charitable tools.

Um, Yes, some, some lawmakers kind of look at that and say, hey, we want assets, we want cash to be given to charities. And so, yeah, there’s always kind of the question of, are there going to be kind of rules imposed on donor revised funds? Um, again, there’s nothing that we see that’s coming that’s imminent.

Uh, it’s certainly not out of the question. But, again, we like to encourage, from an organizational standpoint, we like to encourage people to use their donor revised fund. Doesn’t mean you have to grant the whole balance out right away. There’s lots of reasons that you’d want to keep a balance, and grow it, seek to grow it.

But, um, yeah, that’s kind of, that’s kind of the best we know at this point. Yeah. So, I think we’re about at time, but I had one more question on the list, and then whatever you want to finish up with. So, you know, my question [00:53:00] is, I’m a business owner, I’m looking to sell, If I gift shares into the DAF, is that going to discourage any potential buyers of my company?

Are they going to say, oh, that’s too much complexity, or I don’t want to have to mess with that? Do you see that happening at all, or is it pretty straightforward? Um, rarely is the answer I would give. Um, I can’t say that a potential buyer isn’t ever curious about that. Uh, I think that the answer, the solution to that, the practical solution to that is communication.

Um, so if, if you Are, uh, as a business owner already engaged in the process of potentially selling your business and you decide you want to make a charitable gift. Um, understanding what that means for you first, makes sense. But then bringing a potential buyer in, um, along the way or once you’ve kind of decided and having good communication about it as early as possible is a best practice.

Makes sense. Um, and often we’re on those calls to kind of help explain the situation. Because I mean again, the [00:54:00] donor gets it from a concept level, and that’s great. And that’s, that’s more than half the battle. But then the questions start to come, you know, what does this mean, and how does this work? Um, some of those questions are starting to come.

And so as they get maybe a little more technical with a potential buyer, you know, we are happy to have that conversation with the donor and the giver and their, their, their team. Um, so again, short answer, no, it, it, we haven’t seen it dissuade a lot of. It does have to be kind of navigated, for sure. Um, so yeah, that’s kind of how I would kind of approach that.

Just good, good advanced communication. Before we wrap up, anything else you want to add? No, I, you know, my question would be, you know, For someone considering this, what is it that you’re passionate about? What is the cause? What is the organization? What is it you’re passionate about? And typically donors have that One or one cause or one organization or one thing they know they want to pursue and then others from there They want to make grants to you.

Let that kind of be the driver. You know, that’s that’s your charitable intent [00:55:00] That’s the goal you’re after to go through the steps to do this Uh, you know, one example that comes to mind, and this is a few years back, but one donor was talking to Samaritan’s Purse. We know Samaritan’s Purse does great work.

They, they could put up a field hospital for five million dollars, build it, develop it, load it on their C 10? No, what are the, I can’t remember the planes. One of the big, one of the big cargo planes. Somebody knows this. Um, fly it overseas, deploy it, open it. Operate it and then, and then literally leave the asset there for the indigenous, the locals to run.

Five million dollars they could do this. Donor got so excited about it. Knew he potentially had a sale coming down the pipe. It was the idea of, you know, looking at recapitalizing or selling his business. Uh, bringing in private equity. And so this, you know, whole scenario came together. I’m going to give 5, 000, 000 to my business, to NCF, to charity, eventually, we’re going to sell it, we’ll have liquidity, and I can fund a field hospital, you know, so I mean, the idea of like that driving it makes going through the steps, um, gives you a lot more [00:56:00] kind of passion and kind of fire to go through the steps to actually get this done, when you know what the end result is that you’re after.

Yeah. That’s awesome. Yeah. Brandon, thank you. Yeah. Thank you for joining me. I appreciate it. Thanks for the opportunity. Yeah. Thanks for having me. Yeah. Enjoy talking about it. Any questions? Oh, next month. Uh, yeah, next month we’ve got, uh, another event series. We’ll be joined with another fabulous speaker, Greg Brown.

That’s going to be April the 9th. And, uh, we’ll send out some information on Partial CFO, is that right? Yeah, partial CFO. Join us then. Thanks a lot.