ESOPs and Charitable Giving: A Partnership

Shanney-Saborsky, Regina
December 1996
Journal of Financial Planning;Dec1996, Vol. 9 Issue 6, p18
Academic Journal
One of the primary goals for the owner of a closely held company is to maximize the value at his or her estate while minimizing individual, corporate and estate tax liability. Despite its special status as the only type of qualified retirement plan that can borrow money to purchase plan assets the employee stock ownership program (ESOP) is a highly sophisticated form of retirement program, subject to the same guidelines imposed on profit-sharing and 401(k) plans. As with any retirement program, the ESOP's primary purpose is to provide benefits to employees upon death, disability or retirement. As with any qualified plan, the ESOP is subject to eligibility and vesting requirements imposed by the Internal Revenue Code, which must be nondiscriminatory in operation. The allocation formula to provide benefits to ESOP participants must be nondiscriminatory and is based on the ratio of each participant's compensation to the compensarion of all participants. From the perspective of the shareholders of a closely held business, the ESOP creates a private marker for the shares of stock in the business and the means by which the shareholder can create a tax-effective liquidity for his estate.


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