Private foundations are an appealing planning tool for the charitably inclined closely held business owner. A gift or bequest to a client’s private foundation allows the client or his estate to obtain an upfront tax deduction, while allowing the family to continue to control the asset.
However, when the bequest is an interest in a closely held business, the private foundation excise tax rules may prohibit the foundation from owning the interest long term. As such, a plan to bequeath an interest in a closely held business to a private foundation necessarily requires consideration of whether the foundation will need to divest itself of the interest after the client’s death, and if so, how that divestment will occur.
