A Charitable Business Succession Plan Can Yield Many Benefits

The gift by the business owner to the CRT also creates a current income tax deduction. The deduction is based on the present value of the future gift to charity and depends, in part, on the nature of the gift and the type of charitable beneficiary. In the event the deduction cannot be used entirely in the year of the gift, due to limitations on income tax charitable contribution deductions, the deduction may be carried forward for up to five additional years.

At the death of the income beneficiaries–in our example the owner and the spouse–the remaining assets of the CRT then pass to one or more charities. The designation of the charities can be handled in any number of ways–from a simple designation of one or more charities at the time the CRT is established to a more elaborate process of selecting the charities at some later point, perhaps by a committee including the owners children. The charitable beneficiary could also be a private foundation created by the business owner which could then have perpetual existence as a type of feeder organization that supports local charities with grants over the years.

In this plan, the business owners family can be protected with life insurance in a trust in an amount sufficient to replace the value of the CRT passing to the charities. This trust can be designed to provide an income and an estate-tax free benefit to the heirs.

The benefits of the charitable succession plan in these circumstances are clear:

A third-party sale by the CRT is a solid succession plan in many situations;
The tax management benefits of using a CRT include avoiding capital gains tax on the sale of the business, a charitable contribution income tax deduction on the gift of the stock to the CRT, and estate tax savings resulting from getting the value of the business and the proceeds of its sale out of the business owners estate;
The CRT can be an important source of retirement income for the business owner and spouse during their lifetimes;
The heirs are protected by life insurance placed in a trust for their benefit; and best of all,
All of these benefits for the business owner and his or her family are supplemented by the substantial charitable contribution that results from the CRT. Such a charitable benefit can constitute a lasting legacy that enables the business owner to contribute to the community in meaningful ways over many generations to come.

The charitable business succession plan may be ideal for any business owner whose goal is to provide for an orderly business transition, obtain retirement income and also benefit worthwhile charitable beneficiaries.

Richard C. Martin, JD, CLU, ChFC, CFP, is vice president advanced marketing, The Phoenix Companies Inc., Hartford, Conn. He may be reached via e-mail at [email protected].

Reproduced from National Underwriter Edition, February 10, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.