Details, details, details!

B____ [our estate planning attorney], L____ [our CPA], and I met this morning for our annual corporate meetings and strategy session. We discussed our legacy plans at this time. Both B____ and L____ were far more comfortable with the idea of us gifting our company to a DAF [a Donor Advised Fund] than changing it into a 501(c)(3) corporation.

They had a few key questions, one of which we were able to answer through resources they had at hand. Two key questions remain, however. (I’m sure a few more will come up. But these were the big ones that existed at the end of our meeting this morning.)

L____ and I discussed briefly whether there might be a strategic reason to “layer-in” our gifting of InquisiCorp stock to the DAF rather than giving 99% outright at the beginning. Since Sarita and I are really not interested in limiting our giving to the 50% AGI limit (but, instead, want to maximize our charitable contributions), I’m not sure we can recoup the “lost” tax deductions in future years whether we “layer” our contributions of stock or simply dump all 99% at one time. . . . Still, L____ said he’d like to noodle on the idea.

A couple of hours later, then, L____ wrote. Bottom line,

[E]ven with 99% of the stock owned by the DAF…the UBTI taxes [in the new scenario] are more than the individual taxes [i.e., they are more than the taxes as our estate is currently set up].

The net to the charity is close to the same or even less by gifting the stock to the DAF. . . .

So the Holzmanns can give more than 50% of their AGI . . . and be in the same or better place than giving the stock to a DAF. . . .

He showed the data and calculations on which he based his conclusions, but his final word: “John, I may be missing something here that the attorney from NCF can help me with.”

One thing I noticed: the NCF attorney said that “[NCF's] historical UBTI tax rate has been less than 7% but could possibly be as high as 17.5% (half the top federal income tax rate).” L____, our CPA, is thinking in terms of UBTI as “the same as the corporate tax rates (flat 34% over $335,000) unless in a trust.”

I get the sense NCF is, somehow, able to acquire a significantly lower tax rate without placing the DAF in a trust. . . .

So a question that sits front and center: How is NCF able to enjoy these remarkable tax rates within the non-gray portion of the tax code?

B____ and L____ both expressed concerns (based on far too many sad experiences with clients who refused to listen to their cautionary counsel!) . . . –They are both concerned that Sarita and I not get involved in some kind of “scheme” that would come back and bite us at some time in the future.

One other issue that B____ raised: he mentioned a case with which he is familiar where a donor made a charitable contribution of an ongoing business (a golf course) in which part of the premise of the gift being given had to do with the business continuing in operation after it was handed over to the charity. In the particular case B____ referenced, the donor was Japanese. He had been living in the United States for some time prior to his transfer of the golf course. Shortly after he made the transfer, however, the donor’s family asked him to return to Japan. “The day after he left for Japan,” B____ said, “the charity shut down the course. . . .”

So, I put B____’s story in the form of a question to the NCF attorney: “What grounds can you give for Sonlight/InquisiCorp and the Holzmanns to believe that such a result would not occur with a substantial gift of Sonlight/InquisiCorp stock to NCF?”

I believe these are the primary issues L____ and B____ have in their minds at this time.

I’ll be curious to see how J____, the NCF attorney, responds!

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