Michael Wilkes is an owner of Robinson Wilkes,
L.L.C., a money management firm dedicated to a value-oriented
approach to enhancing investment returns and minimizing risk for
its client's equity and fixed income investments. In addition,
Robinson Wilkes works with clients to help them lessen their tax
In our efforts to reduce clients' tax liabilities, we have often found it beneficial to take advantage of charity's tax-exempt status to achieve mutually advantageous results for charity and the taxpayer.
Because they are such effective techniques for this purpose, we have all been inundated with materials on charitable remainder trusts, charitable lead trusts and private foundations. For a change of pace, I would like to discuss a couple of simpler, less publicized, but equally effective, techniques.
One of our clients wanted to give his children enough that they would "want for nothing," but not so much that they would have to "do nothing." In addition, he had a closely held company that created the opportunity for valuation disputes with the Internal Revenue Service on his federal estate and gift tax returns.
To minimize the risk of dispute with the IRS and accomplish this objective, we gave the children stock worth a fixed amount and the balance of the stock to charity. This way, the *IRS has no incentive to challenge the value of the stock. In fact, it has a disincentive. Any increase in the value of the stock results in more stock going to charity and an increase in the charitable deduction.
Another example comes from one of our clients using closely held business stock to make charitable gifts. The company can then redeem the stock with company cash. This technique creates the same income tax charitable deduction for the taxpayer and removes cash from the company, thereby reducing exposure to the corporate-level accumulated earnings tax, without company income being taxed a second time to its owner as a dividend.
These techniques are just two of the numerous charitable tax saving strategies available, depending on the type of property to be given and the type of charity involved. While they are much simpler to implement and administer than charitable trusts, there are several traps for the unwary.
For example, both of these planning techniques contemplate the donor's closely held corporation redeeming its stock from the charity. Charity will be particularly interested in the redemption if the stock is not marketable and does not normally pay a dividend. Nevertheless, donors must make sure there is no obligation on the charity to have its stock redeemed, as negative tax consequences can result from such an obligation. As a result, neither technique should be undertaken without professional tax advice.
By working with your professional money manager, you and a charitable organization, such as the Health Science Center, will both benefit greatly from wise philanthropic planning.