Using Illiquid Complex Assets to “Give While You Live”



The ongoing shift in generational wealth is leading some wealthy charitably inclined individuals to explore how they can use their illiquid complex assets to support the causes they care about most while they are alive.   Nearly half of US corporations are classified as S-corporations representing over $3 trillion* in assets.  Couple this with another 1.7 million C corporations as well as limited partnerships and LLC and pretty soon you are talking about a substantial amount of illiquid wealth tied up in private shares.  This is not to mention other types of complex assets like raw land, life insurance policies and even commodities.

These are assets that considered to be “dead assets” meaning they are not required for sustaining themselves in retirement and will otherwise wind up in probate after their passing.

In addition to the joy of seeing the impact of their gift on the charitable causes they care about most, gifting during life has other more pragmatic advantages these individuals find attractive.

1)    Income Tax Deduction The donor receives an immediate tax deduction in the year they make their contribution. The IRS does mandate annual limitations, depending upon the donor’s adjusted gross income (AGI):

·         Deduction for cash – up to 50 % of AGI.

·         Deduction for securities and other appreciated assets – up to 30 % of AGI.

·         There is a five-year carry-forward for unused deductions.

2)    Potential reduction in capital gains taxes

3)    Estate Planning to potentially reduce or eliminate estate taxes

4)    Potential reduction in AMT If the donor’s income is subject to alternative minimum tax (AMT), the contribution to their donor advised fund will reduce their AMT impact.

The problem is that most charitable organizations do not possess the means or ability to deal with these types of assets.  Our Wealth Management team working with your legal and tax advisors can help you structure a solution to help you “Give While You Live.”

*Source Internal Revenue Service

The foregoing is for informational purposes only and is not intended to be a solicitation to buy or sell any instrument mentioned herein or to pursue any specific strategy.  It should not be considered personalized legal or tax advice as neither Paragon Bank nor LPL may deliver such advice..  Individuals should consult their qualified legal or tax advisors before pursuing any specific course of action.

If you enjoyed this article, would you mind sharing it?

Recent Posts