The Give and Hold Strategy allows a business owner to donate shares of a business NOW, receive a charitable deduction, reduce taxes and still control the business activities.  Download this PDF to understand how the process works. 

Contact Alanna Linden for more information at alinden@cftriangle.org or 919-743-2555.

A Case Study of the Give and Hold Strategy

Charles and Margaret owned a successful distribution company worth around $10 million and tithed regularly. Recently, they felt called to invest an additional $150,000 in a ministry project. They wanted to make the gift over the next five years but faced several challenges:

• First, they weren’t ready to sell the company because Charles planned on working longer, and someday, they hoped to pass ownership of the business to their children and key employees.

• Second, because the vast majority of their estate was comprised of the business itself, cash was tight. High taxes and ongoing operational investments limited their available cash to give.

• Third, they had considered establishing a private foundation for their giving but their professional advisor had counseled them against it. If they gave privately-held corporate interests to a private foundation, their deduction would only be equal to the cost basis of the business. 

The solution

Charles and Margaret learned about a Giving Fund with the National Christian Foundation (NCF), a simpler alternative to a private foundation. After careful planning with their advisors and NCF, they decided to open a Giving Fund and donate a 5 percent ($500,000) non-voting interest of their business into it each year. They would continue to manage the business while receiving several important benefits:

• Increased cash flow – Because NCF is a public charity, they received a fair-market-value tax deduction each year for the gifted interest. Due to the tax savings from their deduction, they increased their cash flow by approximately $200,000 in the first year. They used this money to fund the $150,000 ministry gift, and the remaining $50,000 to help put their kids through college. As their business grew at a rate of 10 percent each year, they were only giving a portion of the annual appreciation in the business.
   
• Decreased taxes and increased giving – Federal and State taxation on the annual income from the gifted interest was greatly reduced. This freed up tax dollars that could be put back into the business for growth or made available for additional charitable giving.
   
• Reduced capital gains tax and maintained management oversight – Later, when they decided to sell the business, the Giving Fund sold its shares to their children and key employees. Capital gain taxes were dramatically reduced (or even completely avoided) on the gifted portion, and the sale proceeds were available in their Giving Fund for distribution to their favorite ministries.

The result

Charles and Margaret were able to invest significant sums of money in ministries rather than paying those dollars in taxes. And they were able to do it while they were living without having to prematurely liquidate their business. Overall, they continued to grow their business while giving more by converting tax dollars into charitable dollars.