Focus on S Corporation Stocks and Charitable Giving
by Sandy Gohn, DLA Piper Rudnick Gray Cary

One Business Owner’s Story
The Richard E. McCready Foundation Fund at BCF

Incorporating Philanthropy Into Your Family-Owned Business

• Are all your assets tied up in your business?
• Are you considering selling your business?
• Are you developing a succession plan?

If so, then it’s time to put your business to work for the things that are important to you. BCF has the know-how and the capacity to help you transform your equity in your business into a philanthropic fund that can help you reach your charitable goals.

By contributing privately-held stock to BCF you can establish a donor-advised fund, endow a favorite organization, create a fund in your name dedicated to an important cause, such as the environment or education, or accomplish just about anything else you can imagine.

So whether you’re working on a five-year plan, a succession plan, or a time-to-sell-the-business plan . . . it’s a perfect time to incorporate philanthropy.

Contact BCF’s professional staff for a free, no obligation consultation. We’ll work with your financial and legal advisors to incorporate philanthropy into your business plan.

Focus on S Corporation Stocks
By Sandra P. Gohn

There are more opportunities today than ever for owners of small businesses to become involved in charitable planning. If you are a small business owner, your business may well be your greatest asset, so transition points—when you’re selling the business or handing it down to the next generation—provide openings for integrating philanthropy into your business planning.

In this article, we will highlight some of the opportunities available for charitable planning for owners of “S corporations,” small businesses that operate as corporations but are treated as partnerships for tax purposes. Fortunately, laws that used to prohibit charities from owning S corporation stock have changed. Today, while you cannot donate S corporation stock to a private foundation, you can donate it to a public charity, such as a community foundation. Donating to a community foundation provides you with a lot of flexibility as to the ultimate charitable purpose of your gift.

When contemplating the sale of your S corporation, consider giving a portion of your stock to a public charity prior to the sale. You will generally receive a deduction for the full fair market value of the stock, and will avoid the capital gain upon sale of any stock you donate. (Timing is an important issue here, and you should consult your lawyer or accountant for help.)

If you want to remain involved in determining the charitable uses of the proceeds from your stock, you might consider a donor-advised fund at BCF or another public charity. The charity has legal control over the fund, but invites your participation in determining how money is distributed from the fund.

The law prohibits donations of S corporation stock to a charitable remainder trust but, if retaining an income stream after making the S corporation stock gift is important to you, a charitable gift annuity can help you accomplish this while securing your philanthropic goals. Community foundations as well as other large public charities generally offer charitable gift annuities.

Since, in both alternatives, you are giving the stock to a public charity, the gift annuity and donor-advised fund are valuable choices for S corporation owners.

The Baltimore Community Foundation, as well as other large public charities, is familiar with both of these options, and are available to help S corporation business owners tailor their charitable objectives to their particular circumstances.

Sandra P. Gohn is a partner at DLA Piper Rudnick Gray Cary specializing in estates and trusts.

One Business Owner’s Story
The Richard E. McCready Foundation Fund at BCF

At first glance, Dick McCready fits the profile of the successful business professional—entrepreneur, business  owner, consultant. But you’d be only half right. Because throughout his life, McCready has quietly pursued a second career, one that has reached outside the world of business to touch the lives of those in need.

During his years as an executive in the food service supply industry, McCready encountered this need first hand—and in response, made a life-changing decision. We were making a number of donations to various charities on a regular basis,” he recalls. “Being in the food business, our giving seemed almost obligatory.” To streamline these donations, McCready established his first formal charity, the Richard E. McCready Charity Fund, through his company in 1985.

After this first taste, his appetite for giving grew. Over the decades that followed, McCready continued to foster what he calls his “causes,” lending his administrative talents to some, like the Maryland Food Bank, and literally inventing others, such as the Grant-A-Wish Foundation (now the Believe in Tomorrow National Children’s Foundation). But along the way, a single question nagged him—how would his philanthropic efforts carry on, once he retired?

"When I started thinking about the sale of my business, I wanted my philanthropy to continue,” says McCready. He and his advisors determined how to give a portion of his interest in the business to a new charitable entity, the Richard E. McCready Foundation. But a missing ingredient remained—exactly where the new foundation would reside.

"That’s when we decided to meet with the Baltimore Community Foundation,” says McCready. “I was very impressed with how well BCF worked with my existing team of advisors. The plan they presented for turning the equity I had in my business into a philanthropic fund certainly fit my goals. So it was a pretty easy decision to make.”

With the support of BCF advisors, McCready’s foundation was set up as a donor-advised fund. McCready then donated an interest in his business to the fund. When the business was later sold, the fund received its share of the proceeds, with BCF helping to manage this critical transition of the allocation into the fund. “So I received a tax deduction on the gift,” says McCready, “but more important, BCF has given me the ability to continue contributing to my charities for years to come—and at the levels I want.”

For a man who has spent his life giving to others, there can be no sweeter reward.