Gifts of Business Interests: The Details

When the time comes to transfer or sell your business, there are tax and practical reasons for including a charity in the plan.

Is this gift right for you?

A gift of business interests is for you if…

You are an entrepreneur, member of a family business, or participant in a professional corporation.
You hold an ownership interest in a viable enterprise, and are able to transfer your interest to third parties like Yale.
Your interest will continue to generate revenues that can flow to us, or it is likely to be redeemed by the enterprise in the near future.
Your interest is not encumbered by debt, and we will not be called on to make future contributions to or for the enterprise.
You want to save both income and capital gains tax.
Your interest is marketable.

Gifts of business interests, such as stock in a closely held corporation, S-corporation stock, and shares in a professional corporation, can benefit you and Yale.

You will receive a charitable income tax deduction for the full fair market value of the shares, with no capital gains liability for the transfer to us. In some cases you may be able to use the shares to fund a gift plan that pays lifetime income to you, like a charitable remainder unitrust, or that lowers the gift/estate-tax cost of passing a family business to the next generation (learn more about charitable lead trusts).

Yale will receive dividends from the shares you donate and will apply the dividends to the purposes you designate. Alternately, we will offer the shares to the corporation for redemption or repurchase. Note that while we will be pleased to consider a redemption of the shares, there can be no prior written agreement between you and the corporation or a third party to offer us such a redemption – if there is, the IRS will impose capital gains tax on your gift transfer.

Planning points

Since shares in a closely held business or an investment partnership don't trade publicly, you will need to secure an independent appraisal of the fair market value of the shares you donate.
Before proceeding, make sure that there are no restrictions on the transferability of the shares, and that you have not used the shares to secure a loan from the corporation or partnership.
Shares of an S-corporation are subject to additional IRS regulations.
Because the offer of a business interest involves us in issues of marketability, liability, and involvement in business operations, Yale must first review and approve any such transfer.