Should You Adopt the Zuckerberg Strategy and “Donate” to an LLC?

17 Dec

Should You Adopt the Zuckerberg Strategy and “Donate” to an LLC?

Facebook founder and CEO Mark Zuckerberg made headlines after announcing that he would be “donating” the bulk of his $45 billion fortune to charity. In some corners, Zuckerberg was derided since his “donation” was to a Limited Liability Company, as opposed to a charitable trust or actual charity, according to the Washington Post. The Zuckerberg-Chan Initiative (the LLC) will receive $45 billion worth of Facebook shares that Mr. Zuckerberg owns. So, in reality, no real charitable donation was made. Though, Zuckerberg has publicly stated that his LLC will focus on important charitable and public causes such as curing disease, advancing education reform, and so forth.

Important question – is “donating” money to an LLC a wise estate and/or business strategy for you to consider?

Answer: possibly.

An LLC is a pass-through entity offering few tax benefits for Mr. Zuckerberg or his charitable endeavors. He may benefit from the timing of making estimated tax payments, but that is not the main value derived from using an LLC, according to CBS News.

LLC Benefits

By forming an LLC, Mr. Zuckerberg is wisely adding legal liability protection and administrative benefits to the management and oversight of his money. By managing and directing the funds through an LLC, Mr. Zuckerberg adds an important layer of liability protection so he is not personally liable if a lawsuit, for whatever reason, is filed against the LLC. The administrative benefit is that he can appoint and remove entity members as he desires. Mr. Zuckerberg can also better account for the various share classes of stock and the overall activity and expenses that are connected with this initiative, according to the aforementioned CBS News article.

The Cost-Basis Benefit

Any tax benefits will be enjoyed when Mr. Zuckerberg directs the LLC to donate the $45 billion in Facebook shares to a charitable organization, or organizations. Why? Because a large percentage of these shares have a cost basis of pennies each. Facebook’s current value, as of the date of this posting, is over $100 per share. That is a massive unrealized capital gain. Transferring the funds to the LLC and letting the LLC use the funds for charitable initiatives enables Zuckerberg, and his estate, to potentially avoid paying a huge tax on the capital gains in his Facebook shares.

So, should you run out and form your own LLC? Not so fast. Whether this strategy makes sense for you depends on a multitude of factors. Nevertheless, it has potential benefits for both the donor, and for many charitable initiatives. You need to sit down with an experienced estate and business planning attorney in your area to discuss your options.

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