In this Wealth Planning Update:
In early December 2015, Facebook founder and CEO Mark Zuckerberg and his wife, Dr. Priscilla Chan, pledged to give away 99 percent of their Facebook shares, worth an estimated $45 billion. Their stated objective in making this pledge is to help solve the world’s problems, specifically promoting equality in areas such as health, education, scientific research, and energy. Their philanthropic goals also include promoting “personalized learning, curing disease, connecting people, and building strong communities.”
While somewhat controversial, the way in which the couple has chosen to gift these assets, through a Limited Liability Company (LLC) as opposed to a traditional charitable foundation, appears to be an astute planning move that offers them a number of advantages based on their specific needs.
Why create an LLC as opposed to a private foundation?
The primary reasons for choosing to establish an LLC as opposed to a private foundation are control and flexibility. The benefits of an LLC are as follows:
Tax considerations associated with LLCs
As with any gifting strategy, there are potential benefits and drawbacks associated with LLCs. Tax benefits are associated direct gifts from LLCs to charitable organizations, resulting in:
These tax advantages may be appealing to ultra-high-net-worth investors because they are unlikely to be able to deduct the full amount of their planned charitable contributions. The tax code limits deductions to public charities to a percentage of Annual Gross Income (AGI). For cash contributions, the allowable deduction is 50 percent of AGI, and for appreciated publicly traded securities the deduction is 30 percent of AGI, with 5-year carryforward.
Tax drawbacks for LLCs—the price that individuals pay for the anonymity and flexibility offered by these entities—include:
Are other gifting strategies still relevant?
The high-profile decision by Mr. Zuckerberg and Dr. Chan to establish an LLC rather than a private foundation has highlighted the potential benefits of this type of gifting structure. As with any gifting strategy, however, whether an LLC is appropriate will depend on an individual’s specific circumstances and goals. In the example of the Chan Zuckerberg Initiative, LLC, Mr. Zuckerberg highlights these benefits on the LLC’s Facebook page:
“The Chan Zuckerberg Initiative is structured as an LLC rather than a traditional foundation. This enables us to pursue our mission by funding non-profit organizations, making private investments and participating in policy debates -- in each case with the goal of generating a positive impact in areas of great need. Any net profits from investments will also be used to advance this mission.”
Clearly, an LLC is the best structure for achieving these types of objectives in this specific case, and it may be appropriate for other wealthy individuals who want similar control and flexibility and for whom deductions are not as important. However, if charitable tax deductions are a key part of your tax-planning strategy, or you have older children who you want to involve in a gifting strategy to reinforce family values, a private foundation or donor advised fund may prove a better option.
To determine the most appropriate charitable gifting strategy to meet your philanthropic goals and one best suited to your tax situation and desired level of involvement, we recommend that you ask your relationship manager to introduce you to either a Philanthropic or a Wealth Planning specialist.
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The information and opinions in this report were prepared by Wells Fargo Wealth Management. Information and opinions have been obtained or derived from sources we consider reliable, but we cannot guarantee their accuracy or completeness. Opinions represent Wells Fargo Wealth Management’s opinion as of the date of this report and are for general information purposes only. Wells Fargo Wealth Management does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.
Wells Fargo and Company and its affiliates do not provide legal advice. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.
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