Jun 11, 2013

DEFEATING THE TAX MONSTER: Funding Goals and a Legacy of Giving with Business Interest and Appreciated Assets

I’ve never really liked scary movies.  It seems like when you go to rent a movie these days the shelves are crammed full of these frightening films.  The few that I saw as a kid went something like this:  
The monster has grown more powerful and it seems like there is no hope.  The plot can’t get any darker when a hero determines to stop running from the frightful foe and take a stand.  Usually the hero turns the beast’s clumsy weakness against it in some genius turn of events.  The enemy is vanquished and the hero is victorious. 
Imagine your assets in this way.  As a result of increasing taxes and a desire to preserve wealth, Americans have embraced assets that defer taxation. As the value of the asset grows, so does the tax associated.  We see families that feel trapped in certain assets because of these taxes.  Business owners feel trapped in their company, real estate investors defer taxes with a 1031 exchange, stock owners are over exposed to risk because of the tax implications of selling. 
Just like the monster growing in power, the asset takes over.  The tax monster controls decision making. These tax implications chain business owners to their company.  They force real estate investors to limit their options and we see stock investors’ lives tied to a few companies that have major effects on their portfolio and their emotions.  These families can’t live or give quite the way they’d like until they take care of this asset.
What if you stopped running from that ugly tax asset and you stared it in the face.  What if there was a way to turn the tables on this giant tax beast?  What if you could turn this pending tax nightmare into a great victory?  
Get ready to be the hero!  We love to go after these ugly tax assets because they have the most potential. When we dig into a net worth statement, these are the assets that we highlight and dream about most. 
You have to give a little to get a little.  Many of the families that we work with love to support their community or ministries or their church.  They do this out of their cash flow.  I love to watch these families come alive when they talk about their passion.  I can’t tell you how many times I’ve heard folks say, “Once we sell the business, we are excited to…”
In order to give more or spend more, folks would have to sell this ugly tax asset.  The taxes, along with other factors, are holding them back.  This is the perfect opportunity to gift a portion of these assets. 
By placing an ugly tax asset into a tax free charitable account, you can sell without the tax consequences. This is how many big family foundations were funded. The Gates Foundation, The Ford Foundation, The Buffet Foundation--all were funded with interest in their company. 
Giving isn’t just for the super wealthy.  Any family with an ugly tax asset should consider this, especially if they are charitable. 
The Charitable Checkbook Explained.  Your family can open a charitable checkbook.  Just like any account you can select any options that suit your family.  If you want to give more, the account can do that.  If you need income for life, the account can make that happen.  If you want to get a deduction and avoid taxes, your charitable checkbook can help you to meet your goals.  In the end you can sell this ugly tax asset without the tax penalty and you can fund your goals with tax savings.  The worse the pending tax implication, the better the advantages of giving. 
The most common type of charitable checkbook is called a Donor Advised Fund or DAF.  You can give business interest, appreciated stock or real estate to this type of fund, then sell it, skip out on the taxes and give. Folks who need income from the account have other options available.
Whether you’re diversifying out of a stock, passing on a business or moving out of real estate or some other highly appreciated asset, consider a charitable gift as part of your strategy.  
Stop running from the tax monster and gather your team of trusted advisors to start strategizing on how to use your highly appreciated asset to fund your goals and a legacy of giving.
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