IPOs and Charitable Clients: Three Scenarios for Impact

If you keep an eye on initial public offerings, it’s been an exciting few weeks, especially if your clients are involved. As you work with clients who hold stock that’s going public, or if your clients are considering investing in companies involved in IPOs, be sure to look at all angles of the client’s financial and estate plan that may be impacted — including charitable planning. 

CNBC’s article on SpaceX millionaires and wealth management, The Wall Street Journal’s “Tech’s Next IPO Wave Promises a Charitable Windfall,” and Business Insider’s coverage all point to the same theme: Liquidity events can quickly turn founders, executives, early employees and investors into high-net-worth charitable clients. Of course, the key is to bring up the topic of charitable planning as early as possible — ideally before shares are sold and before clients make irrevocable tax, investment or estate planning decisions. 

Consider three scenarios for inspiration:  

Scenario 1: Founder or executive with highly appreciated stock.

A founder or executive approaching an IPO may be holding shares with very low basis and significant expected appreciation. Depending on timing, restrictions and tax rules, contributing a portion of appreciated shares to a fund at The Community Foundation may help your client reduce exposure to capital gains tax, while allowing the client to create a long-term charitable strategy after the IPO dust settles. 

Scenario 2: Employee with a sudden wealth event.

IPOs can create thousands of newly wealthy employees who may never have needed sophisticated charitable planning before. These clients may be juggling concentrated stock positions, tax liabilities, estate planning need  and family conversations about wealth. A donor advised fund at The Community Foundation can provide a simple, organized way to set aside charitable dollars in a high-income year and then recommend grants over time as the client becomes more intentional about giving. This strategy is called “bunching.” 

Scenario 3: Investor or family seeking legacy and multigenerational community impact.

Some clients who benefit from IPO activity may want to use the liquidity event to formalize a philanthropic legacy. The Community Foundation can work alongside you and your client to align tax planning, family goals and charitable impact. 

Finally, the common thread across all three scenarios is timing. Once an IPO, sale, or lock-up expiration is underway, some planning options may be limited. Advisors who ask charitable questions early can help clients turn a major financial event into meaningful support for the causes they care about. 

The Community Foundation is here for you!  Please reach out to our team to discuss your clients’ charitable opportunities related to IPOs, appreciated stock, business interests and other complex assets. 

I look forward to hearing from you!