Optimizing illiquid assets to illuminate charitable opportunities

This article is featured in the 2023 Raymond James Charitable Annual Report. To read the full annual report, click here.

To John Hearn, the sentiment “to whom much is given, much is required” is a driving force in his journey to charitable giving. A donor advised fund made his giving not only possible, but easier and more strategic.

A strategy for giving

Hearn never thought he’d be in a position to give substantially. Midway through his career, however, he sold a stake in a private corporation that had significantly appreciated in value. During a visit with his Raymond James financial advisor, Charles Tumlin, Hearn shared his plan to sell his part of the business, as well as his desire to give back.

In line with his faith, he believes that giving away what he can and paying it forward are responsibilities – ones he doesn’t take lightly.

“We have a saying in the South: There are no pockets on caskets,” Hearn says.

The team at Tumlin Levin Sumner Wealth Management of Raymond James, located in Beaufort, South Carolina, quickly got to work. They were the first to advise Hearn about the tax benefits of gifting a portion of the business pre-sale, as well as the need for more sophisticated estate planning as a result of the sale. Hearn assembled his team of legal and accounting professionals, and they collaborated to ensure tax efficiency during the sale of his business while also incorporating his charitable ambitions in the process.

A donor advised fund (DAF) was the right tool for the job. Hearn was able to gift shares in his company to the DAF prior to the sale, which removed all capital gains tax for that gifted portion. Once in the DAF, the shares had the ability to grow tax-free. And because a donation to a DAF is considered a charitable gift, Hearn was able to recognize a tax deduction on the full fair market value of the shares and maximize the impact of the gift.

“This was an opportunity for our client to gift a percentage of the private business to a donor advised fund prior to sale and then convert that into charitable funds,” Tumlin says. “He would not only reduce his taxes on the gain from the sale – he’d be able to grant funds from the DAF directly to the charities he cares about.”

Hearn can issue grants from the DAF at any point in the future – making it a flexible and ongoing way to give. He appreciates the commitment that comes with establishing a donor advised fund.

“Now that I have a DAF, there’s almost a compulsory discipline around donating since it is already up and funded – it also provides flexibility for me to donate down the road,” he says.

“For Hearn, giving to worthy causes is his ‘haven for purpose in the middle of chaos.’”

People-first philosophy

Hearn’s giving philosophy is focused on getting to know the people who run an organization. He believes in looking for a great mission, a professional and disciplined board and a well-run organization.

As someone who sits on several non-profit boards, he believes in giving unrestricted funds to deserving organizations that align with his values. Freeing the nonprofit from having to spend the money in a specific way, he thinks, is a powerful way to get the funds working in a much more effective manner.

Share the Magic, a reading and literacy nonprofit located in Atlanta, met his criteria. Hearn believes strongly in its mission and personally knows the founder, Malcolm Mitchell.

For Hearn, giving to worthy causes is his “haven for purpose in the middle of chaos.” Through the process of selling his business and donating shares pre-sale, he not only achieved his admirable goal of supporting a variety of deserving causes, but also did so using a tax-efficient and strategic approach – making the situation a win-win. A win for avoiding capital gains and earning a tax deduction, and an even bigger win to support a charity near and dear to his heart.