Beyond cash: Giving LLC and partnership interests

Most charitable planning conversations begin in familiar territory: cash and appreciated stock. These assets are predictable, easy to value, and simple to transfer. But it’s likely that most of your clients’ greatest wealth isn’t sitting in an account. It’s in the businesses they’ve spent years building.

Gifting a business interest can feel complicated, but it often represents one of the most overlooked avenues for generosity. For advisors serving business owners, this creates a meaningful opportunity to transform business success into lasting charitable impact and help clients experience the joy of making a significant gift to causes they care deeply about.

The opportunity isn’t just technical. It’s deeply transformational.

Rethinking the starting point

Partnership interests, typically LLCs taxed as partnerships, are often passed over in charitable planning for one simple reason: complexity. Compared to publicly traded stock, they’re harder to understand, harder to value, and harder to transfer.

By design, partnerships are flexible. Their structures can include different ownership classes, unique allocation rules, and tailored economic arrangements. But that complexity is precisely what makes them powerful.

For advisors, this requires a different mindset. Not avoidance, but curiosity. Not quick conclusions, but thoughtful consideration. The goal isn’t to master every technical detail, but to recognize when an opportunity exists and engage the right team to explore it.

A simple idea with powerful impact

While the details can be complex, the fundamental concept is straightforward: Give appreciated equity instead of after-tax cash.

When a client donates a portion of a privately held partnership:

• The client can claim a charitable deduction based on fair market value.
• The charity receives future income and sale proceeds from the gifted interest.

The combined effect can significantly increase the amount ultimately directed to charitable purposes. For the giver, this is an opportunity to align business success with deeply held values. And for the advisor, it’s a chance to help bring that alignment to life with wisdom and care.

3 unique aspects of partnership gifts

Not all partnerships are created equal. Some are relatively straightforward, while others include structural features that can significantly affect how a charitable gift works in practice. While every situation is different, advisors should pay particular attention to three factors: debt, hot assets, and partnership structure.

Debt

Debt is one of the most significant, and often overlooked, elements in partnership gifts.

Debt can increase a partner’s basis, potentially expanding planning and growth opportunities. But it can also introduce unintended tax consequences if not carefully evaluated.

When a gifted partnership interest is subject to debt, the tax code may treat a portion of the transfer as a sale rather than a pure gift. This can trigger income recognition for the giver and create taxable income for the charity.

In practical terms:

• Debt allocated to the gifted interest may reduce the appraised value and available charitable deduction.
• The tax code may treat a portion of the transfer as a sale, triggering taxable income to the giver.
• The charity may pay some tax on unrelated debt-financed income.

Hot assets

Certain partnership assets produce ordinary income rather than capital gain when sold. These are commonly referred to as “hot assets.”

This distinction matters because these ordinary income items in a partnership reduce the portion of the gift eligible for a full fair market value deduction.

When hot assets are present:

• A portion of the gift may not qualify for a full fair market value deduction, lowering the overall charitable deduction.
• Hot assets allocated to the gifted interest may trigger some unrelated business income tax for the charity upon sale.

Partnership structure

Partnerships are highly customizable. Multiple ownership classes, income rights, preferred returns, and other features can significantly affect how value is created and distributed. As a result, each gift must be evaluated on its own terms.

One reason is that different ownership classes can carry very different economic rights. A preferred unit, common unit, or profits interest may participate in income, appreciation, and sale proceeds in markedly different ways.

• Some offer steady income but limited growth.
• Others focus on long-term appreciation.
• Some only gain value when the business reaches certain milestones.

These structures create flexibility, but they also require thoughtful coordination to align the gift with the client’s goals. Understanding the structure helps clarify both the opportunity and what to expect.

A picture of what’s possible

How do these concepts play out in practice? The answer depends on the characteristics of the partnership itself. When a partnership is relatively simple, with no debt, no hot assets, and straightforward economics, the benefits of giving are often clear:

• The giver can claim a charitable deduction based on the appraised fair market value of the gift.
• The charity may sell its portion in a tax-efficient manner, increasing the amount available for giving.

However, many partnerships come with a mix of debt, hot assets, and unique structural features. In fact, that is often the norm rather than the exception.

When debt or hot assets are present, these factors can affect the gift economics:

• Debt or hot assets may reduce the charitable deduction.
• If subject to debt, the gift may generate taxable income for the client.
• The charity may owe some tax on income or proceeds.

When partnerships include multiple classes of ownership:

• Ownership interests may differ significantly in their economic rights.
• Different classes of ownership may produce different financial outcomes.
• The charity receiving the gift steps into the exact ownership position held by the giver.

Even with added complexity, gifting a partnership interest can remain a highly effective charitable strategy. It simply requires closer evaluation and more intentional planning. When those pieces come together, clients can often convert significant business value into meaningful charitable impact.

Timing matters

Even an otherwise well-structured gift can lose many of its advantages if timing is overlooked. If, at the time of the gift, the interest is subject to a binding purchase agreement or a sale is practically certain to occur, the IRS may treat the gift as if the giver sold the asset and then gave cash. Early planning creates greater flexibility and more opportunity to give effectively.

The advisor’s role: Not an expert, but a guide

The advisor’s value isn’t in mastering every technical detail. It’s in recognizing opportunity, asking thoughtful questions, and bringing the right people into the conversation.

At its best, this work goes beyond strategy. It helps clients connect their business success with their deeper values.

Business owners often have a strong sense of purpose tied to what they’ve built. Inviting them to consider generosity in that context can open meaningful conversations about timing, impact, and legacy.

In those moments, the advisor becomes more than a planner. They become a trusted guide.

A powerful giving opportunity

Gifts of partnership and LLC interests are rarely simple. They require coordination, diligence, and thoughtful planning. But they create a unique opportunity to turn a valuable business into extraordinary generosity.

When planned well, clients can often give more than they thought possible, using assets that once felt illiquid or out of reach. Generosity is no longer limited to what’s sitting in an account. Instead, it becomes part of the bigger story of what they’ve built, transforming complex assets into powerful tools for impact.

And when that happens, the results go far beyond the numbers. Lives are changed, missions are advanced, and a deeper purpose behind wealth is revealed.

This isn’t just efficient planning.

It’s life-changing giving.

Note: Partnership gifts are not one-size-fits-all. Before making any gift involving a partnership or LLC, consult your tax and financial advisors to determine what fits your situation.

Rachael Watson, J.D.

Rachael Watson leads the gift planning team at the National Christian Foundation (NCF), where she assists individuals and families in achieving greater generosity and increased tax efficiency in charitable giving through complex gifts.

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