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Redtail Capital - Unlocking Business Value

 

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Gift or Charity Transaction

In some cases, an owner may not be as interested in getting payment for the company as they are in reducing their tax liabilities and "doing good." In fact, there are strategies that can be employed that accomplish both of these objectives.

Gifting usually occurs when an owner either transfers the business to a charity or to family or employees. Valuations for this strategy will generally be lower than most other exit options, as a fair market value approach will be used. This is the standard used by courts and the IRS for determining the value of a business entity. 

Setting up certain types of trusts, such as a Charitable Remainder Trust or a Grantor-Retained Annuity Trust, which are commonly used in estate planning, can provide both a philanthropic and financial benefit to a business owner.

These strategies are generally employed by business owners who have achieved a certain level of wealth outside the business and do not rely on a liquidity event. Instead they are concentrating on the tax and estate implications of a business transfer.

As there are many tax and legal implications involved in a gifting or charity strategy, it is vital that the attorneys and CPAs that are retained for developing and implementing this type of program have strong experience in these areas.