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When local business owner Alex first raised the possibility of selling his closely held LLC, his advisor recognized more than a liquidity event, he saw a planning opportunity.

Rather than waiting until a buyer emerged, the advisor brought the Community Foundation into the conversation early. 

That allowed charitable and tax strategies to be integrated before the transaction structure was set.

That timing proved critical.

The Planning Challenge

Over decades, Alex had built substantial value in his business, resulting in significant unrealized capital gains. A conventional asset or equity sale would have triggered a sizeable capital gains tax liability, materially reducing net proceeds. At the same time, Alex was a strong champion for Sioux Falls and was already a significant philanthropist. 

The Strategy

Working collaboratively, Alex’s advisory team and the Foundation implemented a two-part exit strategy designed to align tax efficiency, income planning and philanthropy:

Pre-Sale Contribution of LLC Interests to a Donor Advised Fund

Prior to any letter of intent or formal sale negotiations, Alex contributed a portion of his LLC membership interests to establish a Donor Advised Fund at the Foundation. Because the DAF is a public charity, the subsequent sale of those interests avoided capital gains tax, allowing 100% of the net proceeds attributable to those shares to be deployed for charitable purposes. Alex also received a fair-market-value charitable deduction, subject to applicable AGI limitations.

Charitable Remainder Trust for Income and Estate Planning

In parallel, Alex funded a charitable remainder trust with additional LLC interests. The CRT provided a lifetime income stream, an immediate charitable income tax deduction, and removed assets from Alex’s taxable estate. Importantly, the trust sold its shares without immediate capital gains tax, preserving more principal to support both Alex’s income needs and an eventual charitable remainder to the DAF.

The Outcome

The combined strategy materially reduced Alex’s capital gains exposure - redirecting hundreds of thousands of dollars that would otherwise have been lost to taxes into charitable vehicles aligned with his values.
Today, Alex’s DAF supports multi-year, transformational grants across the community, while the CRT provides predictable income and long-term estate benefits. Local nonprofits are benefiting from resources that simply would not exist had the planning begun after the sale.

Advisor Takeaway

Alex’s experience underscores a key lesson for professional advisors: timing drives outcomes. By engaging the Foundation before transaction documents were drafted or valuations finalized, the advisory team preserved flexibility, maximized tax efficiency and expanded philanthropic capacity.

For clients with closely held business interests and charitable intent, early coordination between legal, tax and philanthropic advisors can turn a standard exit into a lasting legacy - benefiting both the client and the community they care about.

This case reflects an actual planning engagement. Client identity has been withheld to preserve confidentiality. Each situation is unique, and the strategies described may not be appropriate for all clients.