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Closely-Held Stock & Business Owners: What You Need to Know

For private business owners, giving stock is more than just a financial strategy—it’s an opportunity to align business succession plans, estate planning, and charitable goals. With recent legal updates and looming tax law changes, now is the ideal time for business owners to understand the benefits of transferring closely-held stock to charitable funds like those at the Athens Area Community Foundation.

Closely-held stock gifts can play a role in ensuring a smooth transfer of a business to the next generation while also reducing potential estate tax burdens. This is particularly important in today’s financial climate, where upcoming changes to estate tax laws and court decisions are reshaping the landscape of tax and estate planning.

What Is Closely-Held Stock?

Closely-held stock refers to shares in a privately owned company, typically controlled by a small group of individuals, such as family members, business partners, or a select group of investors. Unlike publicly traded companies, whose shares are bought and sold on open markets, closely-held stock is not readily available to the public. Stockholders usually have a significant influence on the company’s operations and management.

Due to the limited number of shareholders, closely-held companies are often more flexible in their decision-making processes, but they may also face challenges when it comes to liquidity and transferring ownership. This is where estate and succession planning strategies, such as gifting closely-held stock to a charitable organization, can be especially valuable. By donating shares, business owners can align their financial goals with their philanthropic ones while potentially reducing estate tax liabilities.

Key Legal and Tax Developments to Consider

Business owners and their advisors are exploring ways to use closely-held stock donations for both succession planning and charitable giving. Two legal and tax developments are making this option more attractive:

1. The Upcoming Estate Tax Exemption Sunset

At the end of 2025, the current estate tax exemption is set to expire unless new legislation is passed. This change could mean that many more estates will be subject to estate taxes, requiring business owners to rethink their approach to transferring business interests.

For business owners worried about this, donating closely-held stock to a fund at the Athens Area Community Foundation can provide multiple benefits. Not only does this strategy support charitable causes, but it also reduces the size of an estate subject to taxation. As estate tax thresholds lower, gifting stock may become an increasingly popular method to mitigate hefty tax burdens.

2. The Impact of Connelly v. United States

Valuation has always been a consideration in tax and estate planning, especially when it comes to transferring business interests. This year, the Supreme Court’s decision in Connelly v. United States has added new complexity to the way business interests are valued for estate tax purposes.

The Connelly ruling mandates that life insurance proceeds must be included in the valuation of a company without offsetting the redemption obligation. As a result, many business owners could face significantly higher taxable estates. However, by gifting closely-held stock to charity, such as a fund at the Athens Area Community Foundation, business owners can effectively lower their estate’s value and minimize tax obligations. This decision is a reminder of the importance of careful planning to avoid potential pitfalls in estate valuation.

The Benefits of Charitable Giving

Gifting closely-held stock not only reduces estate taxes but also fosters philanthropy within the local community. Contributions to funds at the Athens Area Community Foundation support a wide variety of causes, from education and healthcare to community development. By incorporating charitable giving into their business and estate plans, business owners can leave a lasting legacy while simultaneously protecting their financial interests.

As tax laws continue to evolve, working with a knowledgeable team is essential to ensure that your business owner clients make informed decisions. At the Athens Area Community Foundation, we specialize in helping individuals and advisors implement strategies that benefit both their businesses and their communities.

The Athens Area Community Foundation is committed to helping business owners and their advisors navigate these complex legal and tax developments. By working with our team, you can explore how gifting closely-held stock can help achieve charitable goals, transfer business interests, and avoid estate taxes.

We can assist with structuring stock donations to ensure compliance with current laws, provide advice on valuation concerns, and help you maximize the benefits for both your clients and the charitable organizations they support. To learn more about how we can assist with gifting closely-held stock and other estate planning strategies, contact our team today.