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PERSONAL FINANCIAL PLANNING
Considerations for
philanthropic vehicle decisions
Editor: Practitioners who work with clients Family limited entity, LLC, or FLP
Theodore J. Sarenski, CPA/PFS considering lifetime philanthropic en- The second rung of lifetime charitable
gagements need to know what should gifts is formation of a family limited
Author: be taken into account when choosing entity, limited liability company (LLC),
L. Paul Hood Jr., J.D., LL.M. a desired charitable vehicle. Options or family limited partnership (FLP), fol-
are quite different if a client does not lowed by gifts of interests in the entity.
want to or cannot afford to irrevocably Such gifts are ordinarily subject to valu-
part with significant capital — with the ation discounts for lack of control and
exception of using a testamentary chari- lack of marketability, and they permit
Philanthropic giving table lead trust with a private foundation the donor (or someone else) to control
involves consideration being used as the beneficiary. the cash flow paid out by the entity at-
Other options span from unrestricted
of several structures gifts and donor-advised funds (DAFs) tributable to the gifted interest.
However, gifts of this type are often
and depends on to private foundations. Unrestricted gifts difficult to make to either public chari-
factors including do not require significant planning, so ties or private foundations. Public chari-
ties want an immediately monetizable
this column assumes the client wants
client control, level continuing involvement in the endeavor. asset and are often fearful of unrelated
of contribution or Quite often, the philanthropic deci- business taxable income, so they rarely
investment, and the sion boils down to three main factors. accept gifts without a short, clear path to
monetization. With private foundations,
ability and willingness First factor: Importance of the tax problems increase to include the
of the client’s family client’s retained control world of prohibited transactions under
Charitable gifting strategies can often be
Sec. 4941 and the excise tax on excess
to participate in separated by the level of retained direct business holdings under Sec. 4943.
administrating the or indirect control. Private foundation
endeavor. Testamentary charitable planning The third rung on the charitable side
The first rung of gifting is simply reten- is the creation of a private founda-
tion until death, i.e., testamentary chari- tion, where the assets donated to the
table planning. Retention maximizes private foundation must be expressly
the donor’s retention of control over the set aside exclusively for charitable pur-
property as well as his or her access to poses. Private foundations are subject to
the capital represented by the estate, and lower contribution base limitations for
the use and enjoyment of the property purposes of the income tax charitable
and any income or gain therefrom. contribution deduction vis-à-vis public
Charitable testamentary gifts result in charities, and there are several penalty
a total loss of the income tax charitable taxes and penalties, as well as doctrines
contribution deduction. such as private benefit and private
38 June 2022 The Tax Adviser
