Dum Tempus Habemus, Operemur Bonum

June 18, 2008

When Beaver, of Leave it to Beaver, asked Wally for advice, it was frequently because Eddie Haskell was tormenting him. Wally would always explain that, "Eddie's just giving you 'the business,' Beav." That phrase, amusing at the time, could really be a solution for solving one part of your estate planning puzzle if you decided to start "giving OBU the business!"

Here are a few questions to ask yourself as you determine whether "giving OBU the business" would be a solution for you: Do you own your own business? Would you like to provide an enhanced retirement for yourself? Do you want to teach your family's next generation personal responsibility and self-esteem? Do you want to make an important gift to OBU?

If your answered yes to these questions, your solutions might be through a three-way transaction between you, your family members you wish to end up with the business, and OBU. If you were to go to a business planner you would find that there are actually several ways to respond to these questions. (Rarely is there only one way to solve a business problem and we heartily recommend that you seek independent professional advice. In fact, some of the methods a business planner might recommend could be considerably different than the focus of this article.) However, most planners, if they discover that you have "charitable intent," would likely include some ideas similar to the following one. If you want to benefit others - besides your family - with some of what the Lord has given you, a planner may have a plan which would use a charity (such as OBU) as a conduit to achieve that goal.

Many people are unaware of the tax-beneficial powers accessible through OBU to help you prepare for retirement. Some of these tax-beneficial powers will help you to transfer property to your next generation while allowing you to support the mission of OBU. Even if you just want to sell your business to someone (at least to anyone who is able to pay for it), the University can help you do that in a tax-efficient way where you can have a good retirement income and forward the mission of OBU at the same time.

If the second leg of the transaction is to be a family member, a Charitable Gift Annuity will probably be the best approach. CGAs work this way: you fund the annuity by an exchange of your business to the University. Working with the Baptist Foundation, OBU promises to make a fixed monthly payment to you or (if you are married) to a joint annuity for as long as either you or your spouse is alive. The amount of the monthly payment depends on your age (or your joint ages) and upon the amount you and OBU agree upon as the value of the property you are using to fund the CGA.

How does this help you transfer your business to your children? Typically, if you would like for your children to "buy" the family business and use the value of that "buy" to fund your retirement, you can make OBU the "middle man." In the process, you give your business to OBU as the funding mechanism for a CGA. OBU then sells the business to your family member(s).

As you may imagine, OBU really doesn't want to "run" your business. We will be looking for a buyer who is willing to pay at least the value we have calculated for the business, thereby providing you a retirement income. If your children were to offer to buy this business from us at the stated value, we would most likely sell it to them. Depending on the nature of the business and the nature of our promise to pay you the annuity, we might be able to accept some form of payout rather than an immediate full price.

Of course, this transaction is complicated. It involves extremely technical uses of the Internal Revenue Code. We would enter into this transaction carefully and with significant review. But if your situation was a "fit" for our capacities, it could empower you to: have a good retirement income, be able to continue your business into the next generation of your family by avoiding the estate taxes on the transfer of the business, and provide a significant charitable deduction in the year of transfer. Transferring the business to OBU also helps you avoid the immediate recognition of capital gain taxes. All of these benefits would allow you to "do well" for yourself and your family and at the same time "do good" for the cause of Christ, by promoting the mission of Christian higher education.

How would the ministry we perform at OBU benefit from the transaction? When individuals make this kind of transaction through a commercial annuity (forgetting about the capital gains and estate tax issues) the company will profit at the end of the term of the annuity by gaining funds which were not used in making payments to you. By contrast, if this transaction is completed through OBU and there is value left at the end of the CGA term, those funds will be used as you have directed, supporting scholarships, endowed funds or other priorities you have chosen.

This technique - Giving OBU the Business - obviously isn't for everybody. It's not even for everybody who has a business! However, this could be the best solution for some of us. If you want to consider this option, contact John Little for a more detailed discussion of this interesting technique. You can reach him at 405.878.2718, by email to john.little@okbu.edu, or by writing to him at Oklahoma Baptist University, 500 West University, Shawnee, Oklahoma 74804.