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Business Succession and Philanthropy: What Advisors Need to Know

A successful company can represent years, or even decades, of hard work from the owners behind it. So when it comes time to transition ownership, it can feel emotionally fraught among all the administrative tasks. But what gets overlooked among the taxes and estate planning is how charitable giving fits in.

At the community foundation, we work with individuals, families, business owners, and their trusted advisors to create charitable strategies that align with both financial goals and personal values. Many advisors are surprised to learn just how many philanthropic planning opportunities can arise during a business succession event—particularly when those conversations begin early.

Why Business Succession Planning Matters Now

Business succession planning has become increasingly important as more wealth is concentrated in privately held companies. According to the National Center for the Middle Market, approximately 200,000 privately owned businesses in the United States generate between $10 million and $1 billion in annual revenue.

For many owners, the eventual sale or transfer of their business will be the largest financial transaction of their lives.

A transition that goes well can end in significant liquidity, which has complex tax considerations. It also means making important choices about your legacy, which is a good opening to discuss charitable goals.

For attorneys, CPAs, and financial advisors, incorporating philanthropy into these conversations allows clients to think beyond the transaction itself and consider the long-term impact of their success.

Start the Conversation Early

One of the biggest opportunities in charitable planning comes down to timing.

Too often, philanthropy comes up only once negotiations have started or the sale has closed. And by then, some of the best strategies for charitable planning may be off the table. That’s why it should be part of the success conversion from the beginning. Whether a client is preparing to sell a closely held business, transfer ownership to family members, or simply beginning to think about retirement, early planning creates more flexibility and more options.

Four Questions Every Advisor Should Ask

1. Have you considered including charitable giving in your succession plan?

Many business owners have the majority of their wealth invested in their companies. When ownership changes, taxes can become a significant concern.

Depending on the circumstances, donating a portion of closely held business interests before a transaction is finalized may allow a client to make a meaningful charitable gift while potentially reducing capital gains taxes.

The key is acting before the transaction becomes binding. Once letters of intent are signed or contractual obligations are in place, some planning opportunities may disappear.

It’s also important to remember that charitable planning isn’t limited to business sales. Owners exploring ESOPs, family succession, recapitalizations, or ownership redemptions may also have opportunities to incorporate philanthropy into their plans.

2. Which organizations helped shape your success?

Business transitions often encourage owners to reflect on the people and organizations that contributed to their journey.

Perhaps a local university educated key employees. Maybe a nonprofit provided workforce development opportunities, or a community organization helped support the business during its early years.

These conversations frequently uncover charitable priorities that clients have never formally discussed. They also shift the succession conversation from simply transferring wealth to creating meaningful community impact.

Helping clients identify the causes that matter most can lead to more intentional and fulfilling charitable planning.

3. Would you like future generations involved in your charitable legacy?

Business succession is often about more than passing along financial assets. Many owners also hope to pass along family values.

A donor-advised fund can create an opportunity for children, grandchildren, and future generations to participate in charitable decisions together. Rather than making every grant immediately following a business transition, families can recommend grants over time while continuing conversations about the causes they want to support.

4. Would flexibility make your charitable planning easier?

Not every business owner knows exactly which organizations they want to support immediately after a major liquidity event.

A donor-advised fund offers flexibility by allowing clients to make a charitable contribution during a high-income year while taking additional time to determine how those funds should ultimately be distributed among qualified charities.

This approach separates the timing of the charitable gift from the timing of individual grant recommendations, giving donors the opportunity to thoughtfully evaluate where they can make the greatest impact.

A Word of Caution

When discussing charitable giving following a business transition, some clients naturally assume that creating a private foundation is the best option.

While private foundations certainly have an important role in philanthropy, they also come with substantial administrative responsibilities and regulatory requirements. Rules surrounding self-dealing, excess business holdings, required annual distributions, investments, and ongoing reporting can create significant complexity. Gifts of closely held business interests to private foundations may also receive less favorable tax treatment than similar gifts made through other charitable vehicles.

For many business owners, a donor-advised fund offers a simpler alternative. It can provide administrative ease, greater flexibility, and in many cases, more favorable tax advantages while allowing donors to remain actively involved in recommending grants over time.

A Collaborative Approach to Planning

Business succession is one of the most significant financial milestones many clients will ever experience. With thoughtful planning, it can also become one of the most meaningful opportunities to create lasting community impact.

The community foundation is proud to work alongside attorneys, CPAs, financial advisors, and business owners throughout this process. Whether a client is years away from a transition or actively preparing for one, early conversations about charitable planning can open doors to opportunities that may not exist later.

By bringing philanthropy into the succession planning process from the very beginning, advisors can help clients preserve their values, strengthen their communities, and ensure that the success they’ve built continues making a difference for generations to come.