Why Are Middle Market Millionaires Overlookingthe Powerof Philanthropyin Business Succession Planning

Published in Business and Finance on Wednesday, August 6th 2025 at 16:43 GMT by USA TODAY
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Carlos H. Lowenberg Jr., the founder of Masterpiece Capital, is shattering this mental barrier through his firm and a fervent belief that philanthropy is one of the vital ways to unlock strategic wealth potential.

Why Middle-Market Millionaires Are Overlooking the Power of Philanthropy in Business Succession Planning

In the realm of wealth management and legacy building, middle-market millionaires—typically defined as business owners and entrepreneurs with net worths ranging from $5 million to $100 million—often prioritize financial strategies like asset transfers, tax minimization, and family inheritances in their succession plans. However, a critical yet frequently overlooked component is philanthropy. This oversight stems from a variety of factors, including a narrow focus on immediate financial gains, misconceptions about charitable giving, and a lack of integrated advice from financial advisors. As explored in depth, incorporating philanthropy into business succession planning not only enhances tax efficiency but also fosters a lasting legacy, strengthens family bonds, and aligns personal values with long-term business goals.

At its core, business succession planning involves preparing for the transfer of ownership and control of a company, often to the next generation, partners, or external buyers. For middle-market millionaires, whose wealth is frequently tied up in closely held businesses, this process can be fraught with challenges such as estate taxes, liquidity issues, and interpersonal dynamics. Philanthropy, in this context, refers to strategic charitable giving, which can take forms like establishing family foundations, donor-advised funds, or charitable trusts. These tools allow business owners to donate assets—such as company stock or real estate—while receiving significant tax benefits, including deductions that reduce estate and capital gains taxes. For instance, by gifting appreciated assets to a charity, owners can avoid capital gains taxes that would otherwise erode the value of their estate during succession.

One primary reason middle-market millionaires overlook philanthropy is the perception that it's an optional "add-on" rather than a core strategy. Many view charitable giving as a personal endeavor separate from business operations, perhaps reserved for ultra-high-net-worth individuals like billionaires who establish massive foundations. This mindset is exacerbated by advisors who emphasize traditional tactics like buy-sell agreements or life insurance policies without highlighting philanthropic alternatives. Additionally, there's a knowledge gap: surveys indicate that a substantial portion of these millionaires are unaware of advanced philanthropic vehicles, such as charitable remainder trusts (CRTs). A CRT allows a business owner to transfer assets into a trust that provides income to beneficiaries (like family members) for a set period, after which the remainder goes to a designated charity. This not only generates income during the owner's lifetime but also offers immediate tax deductions, making it a powerful tool for succession.

The benefits of integrating philanthropy extend beyond taxes. It plays a pivotal role in legacy building, enabling business owners to instill values of social responsibility in their heirs. For family-owned enterprises, which constitute a large segment of the middle market, philanthropy can serve as a unifying force. Imagine a scenario where a manufacturing company founder establishes a foundation focused on community education; this not only honors the founder's vision but also involves the next generation in governance, preparing them for leadership roles. Such involvement can mitigate common succession pitfalls, like family disputes over wealth distribution, by shifting the focus from pure inheritance to shared purpose. Moreover, philanthropy enhances the business's reputation, attracting talent, customers, and investors who value corporate social responsibility. In an era where consumers increasingly support ethical brands, a well-publicized philanthropic strategy can boost enterprise value ahead of a sale or transition.

Despite these advantages, barriers persist. Time constraints are a significant hurdle; middle-market entrepreneurs are often deeply involved in day-to-day operations, leaving little room to explore complex philanthropic options. There's also the emotional aspect: giving away wealth can feel counterintuitive when the priority is preserving assets for heirs. However, experts argue that strategic philanthropy actually preserves more wealth by leveraging tax efficiencies. For example, under current U.S. tax laws, charitable contributions can deduct up to 60% of adjusted gross income for cash gifts and 30% for appreciated securities, potentially saving millions in taxes during estate planning. Case studies illustrate this point vividly. Consider a hypothetical middle-market tech firm owner with a $20 million business valuation. By donating a portion of shares to a donor-advised fund before selling the company, they could offset capital gains taxes, retain control over charitable distributions, and ensure a smoother handover to successors without depleting the family's inheritance.

To overcome these oversights, financial professionals recommend a holistic approach. Succession planning should begin with a values assessment, where owners articulate their philanthropic goals—be it supporting education, environmental causes, or healthcare. Collaborating with wealth advisors, attorneys, and philanthropic consultants can help design tailored strategies. Tools like private foundations offer control and family involvement but come with administrative costs, while simpler options like donor-advised funds provide flexibility without the overhead. Timing is crucial; integrating philanthropy early in the succession process allows for maximum tax benefits and legacy impact.

The article also delves into broader economic implications. Middle-market businesses drive a significant portion of the U.S. economy, employing millions and contributing to innovation. When succession plans fail—due to tax burdens or family conflicts—these enterprises risk dissolution, leading to job losses and reduced economic vitality. Philanthropy can mitigate this by providing liquidity and stability. For instance, charitable lead trusts (CLTs) pay income to a charity first, with the remainder going to heirs, offering estate tax relief while supporting causes during the transition.

In conclusion, middle-market millionaires are missing a transformative opportunity by sidelining philanthropy in their succession strategies. It's not merely about giving back; it's a savvy financial move that aligns with personal fulfillment and family harmony. By reframing philanthropy as an integral part of planning, these individuals can secure their legacies, optimize taxes, and contribute positively to society. Advisors and owners alike are encouraged to bridge this gap, ensuring that the power of giving enhances, rather than competes with, business success. As the landscape of wealth transfer evolves, embracing philanthropy could redefine success for generations to come, turning potential oversights into enduring triumphs. (Word count: 912)

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Why Are Middle Market Millionaires Overlookingthe Powerof Philanthropyin Business Succession Planning

Why Middle-Market Millionaires Are Overlooking the Power of Philanthropy in Business Succession Planning