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If you’re considering a gift of appreciated securities to charity or your children, you probably know that significant tax savings may be available if a gift of family business stock is made before the business is sold to an outside party. However, many families may not know that the expected tax savings could vanish if the gift is made too close to the sale’s closing date. When does it become too late for a gift to be made that enables you to optimize tax savings?

With a focus primarily on charitable gifts, our article How Late Is Too Late? When Is It Too Late to Implement Pre-Sale Tax-Saving Strategies? sorts through the timing requirements that must be met for you to gain substantial tax advantages.

Key Takeaways

Charitable gifts and the income tax deduction. Avoiding tax on capital gains on a charitable gift of appreciated securities receives the most scrutiny from the Internal Revenue Service, especially when there is a tight sequence of events between the donor’s gift and the sale of the securities by the charitable entity.

Analyzing the case law. The sequence and timing of events of any gift to charity and sale of stock are critical in answering the “How late is too late?” question. A series of court cases help articulate and illuminate the legal standards that apply in these situations.

Letters of intent. While letters of intent are contractual agreements concerning a negotiation process, they are typically contracted to work in good faith to reach a final deal. When is it too late to donate family business stock to charity (and achieve the desired tax treatment) after a letter of intent has been signed?

State income tax savings. Timing is essential when transferring stock to specially designed trusts with inherent asset protection and state income tax advantages. For example, a Delaware Incomplete Gift Non-Grantor trust can reduce or even eliminate state income taxes in the right circumstances.

Any opinions, projections, or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.

This material is presented for informational purposes only and should not be construed as individual tax or financial advice.

KeyBank does not provide legal advice.

Investment products are:

NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENT AGENCY