Originally published in the LA Business Journal

An exit strategy for any business owner is just as important as the plan that keeps the business running and profitable. For closely-held businesses, deciding whether to sell and to whom is essential. There are also important considerations that have real and lasting financial and tax consequences, not only to the business but also to the business owner and his or her family.

For California business owners, selling can trigger a significant taxable event, which can include as high as a 37.1% tax bill right off the top between federal and state taxes. That significant tax liability ultimately means less money to you and your family. The good news is that for those business owners who are charitably inclined and want to leave a lasting legacy, certain strategies can not only be beneficial to your family, but to society as well.

When making a decision to possibly sell and entertain an offer of purchase, it’s important to understand that once an executed purchase agreement has been signed, your estate and tax planning strategies and options are then limited. You should have a plan to sell the business in place BEFORE any executed sale agreement has been signed and that it has the input of your trusted advisors, including your CPA, attorney, and financial advisor to address the tax and financial impacts to you and your family.

Some strategies include the following:


By Charles Claver, Vice President, Wealth Management Advisor and Infinex Representative

Charitable Remainder Unitrust (CRUT). The business owner transfers all or part of the business to the trustee of the charitable remainder unitrust (CRUT), gets a partial income tax deduction and a set percentage of the trust value or income stream for life, and avoids capital gains on the sale of the asset inside the trust. When the donor or other named beneficiary dies or the trust term ends, the remaining trust assets pass to one or more designated charities.

Charitable Lead Trust. An irrevocable trust that makes payments to a charity for a period of time with the remaining assets eventually going to designated beneficiaries can potentially provide an income tax deduction, as well as estate or gift tax savings on assets ultimately passed to designated beneficiaries. At the same time, the trust distributes regular payments to a preferred charity during the term of the trust. While the donor will realize taxable income on assets inside the trust that are sold to make the charitable payout, with good investment planning inside the trust, the taxes paid over time may be significantly less than the tax saved up front.

Donor-Advised Fund (DAF). It may be possible to gift a portion or all of the business prior to the sale to a donor-advised fund and allow the DAF to sell the donated asset without triggering a taxable event. The tax savings on the gift to the Donor Advised Fund may offset the tax due on any portion sold outside the fund.

Private Foundation. While donors get a deduction for basis (or fair market value, if less), a foundation does work to offset the gain once a taxable event, like a business sale, has already occurred. Aside from the income, gift, and estate tax benefits derived from charitable giving, a private foundation provides more control over the funds and property gifted annually to a charity. Because of the complexity of the law and regulations governing all of these strategies, individuals considering utilizing any of these are strongly advised to consult with an attorney, CPA, IRS enrolled agent, or other competent financial professional.

In addition, many charitable organizations have professionals on staff that can provide insight and guidance in designing and implementing charitable remainder trust planning. A wealth management advisor should also be part of your inner circle of trusted advisors, joining your attorney and CPA in addressing your business sale and succession planning. A trusted advisory relationship begins with an initial review to understand the business and the owner’s personal needs, resources, and financial goals. Next, it identifies gaps and concerns that may impede achievement of desired financial goals. Finally, a customized financial roadmap is created with input from other advisors, such as a CPA and attorney, to provide a comprehensive business exit plan that ensures the sale proceeds go to your family’s financial future and your legacy.


Charles Claver is a Wealth Management Advisor for First Bank Wealth Management. Possessing 17 years of experience in the financial services field, his expertise includes private wealth, investment/retirement/estate, commercial/ personal lines of insurance, and private banking. Wealth Management products and services are provided through First Bank, and its affiliates and subsidiaries. Investment and insurance products are offered through INFINEX INVESTMENTS, INC., Member FINRA/SIPC. First Bank Wealth Management is a trade name of First Bank. Infinex and First Bank are not affiliated. Infinex does insurance business in California as Infinex Insurance Agency, CA Agency License #0H30186. Products and investment advisory services made available through Infinex are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of nor guaranteed or insured by any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value. Infinex does not offer legal or tax advice. Consult your legal and/or tax advisor for more details.