As a trusted advisor, you likely work with clients who own a family business. You’ve probably recognized the powerful role that charitable planning can play in a business succession – but what does that actually look like in practice?
The following case study illustrates how strategic philanthropy can address tax considerations and the family and legacy questions that often accompany a business transition by maximizing benefits for clients and their loved ones and creating greater impact for their community and favorite causes and charities.
When Mark and Elaine come into your office to update their estate and financial plans, retirement is only part of the future picture they’d like to discuss. At 66 and 64, they are financially secure, but a much larger question looms in the background: the future of the family business.
After three decades of ownership, they’re beginning to explore a sale within the next few years.
As their advisor, the first part of your conversation is very familiar: you review retirement projections, discuss portfolio sustainability, and evaluate how the family business’s corporate structure could evolve to allow Mark and Elaine to step back from day-to-day operations.
If you are their financial advisor or CPA, you might run the models, stress-test assumptions, and outline what taxes and retirement could look like if a liquidity event occurs. If you are their estate planning attorney, you might review the company’s legal structure and emergency transition plans.
In any case, you know the numbers are strong. A future sale would more than fund Mark and Elaine’s lifetime needs.
Then the conversation shifts.
“Our two adult children are not active in the business,” says Mark. “A third-party sale is inevitable, and we are fine with that financially, but it’s a gut punch emotionally.”
Mark considers his feelings about a sale to non-family members, “The company’s name carries a lot of weight in the community,” he says. “For years, the business has been closely associated with the family’s identity and local impact. What happens to that identity if we sell?”
Elaine has a different concern. “I really want our children to stay aligned after a liquidity event. For so many years, company events and family gatherings have revolved around the business. I hate to think of that ‘glue’ disappearing in an instant.” Elaine says she has seen other families drift apart after a business sale. “They barely see each other anymore,” she remarks.
This is where you introduce a broader planning lens. You validate that a business sale is not only a financial event. It is deeply personal and public at the same time. You suggest that philanthropy—structured intentionally before a sale—can serve as a bridge.
Mark and Elaine could consider contributing a portion of their closely-held business interests to a donor-advised fund at DuPage Foundation before a sale. If structured appropriately and completed before a legally binding sale is in place, the donor-advised fund would receive its proportionate share of the sale proceeds when the transaction closes.
The tax advantages of the transaction are meaningful. By donating a portion of closely-held stock before a legally binding sale process begins, Mark and Elaine would be eligible for an income tax deduction based on the stock’s fair market value at the time of the gift, subject to IRS limitations. Later, when the business is sold, the proceeds on the shares held by the donor-advised fund are not subject to capital gains tax.
You emphasize that the tax savings are just one part of this conversation.
Establishing a donor-advised fund before the sale creates an opportunity for the family to define their charitable mission while the business is still operating. It signals continuity: although ownership may change, the family’s commitment to the community does not.
At this point, you recommend introducing Mark and Elaine to philanthropic advisors at DuPage Foundation. You suggest to Mark and Elaine that the community foundation team join the next meeting. While you continue to be responsible for facilitating the transaction and coordinating with other advisors, DuPage Foundation can facilitate discussions to help the family explore big questions:
- What causes reflect the values that built the business?
- How should the family’s philanthropic legacy be represented post-sale?
- How can the next generation become engaged in the decision-making?
The Foundation can also facilitate family meetings, provide insights into local community needs, and introduce best practices for multigenerational philanthropy. Importantly, this gives the next generation a meaningful role today. Rather than simply inheriting wealth, they begin working together to make thoughtful grantmaking decisions, evaluate impact, and represent the family’s shared values.
In effect, philanthropy becomes a training ground for shared decision-making—without the operational risk of running a company.
Mark and Elaine love this suggestion. “Let’s do it,” Elaine says. “This plan makes us feel like a future sale is less like an ending and more like a new chapter.”
While every family business is different, opportunities like this are common. Strategic philanthropy can help families prepare for a successful business transaction, and the next phase of their lives together. Through intentional philanthropic structure—designed in coordination with DuPage Foundation—the family’s influence, values, and unity continue.
The team at DuPage Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives to make a difference, locally and beyond. This content is provided for informational purposes only. DuPage Foundation does not provide legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation.
