Giving back is important. It’s a fundamental belief held by many, including Jeffry Brown ’79 and Kristin Brown. It’s also the motivating factor behind their establishment of the Jeffry (Class of 1979) and Kristin Brown Endowed Professorship Fund at University of Wisconsin Law School.
“This gift represents not only a significant investment in the future of the Law School, but also a powerful endorsement of our mission to cultivate academic excellence, innovative scholarship and leadership in the legal field,” said Elizabeth Feist, senior director of development for the Law School.
“By establishing a professorship, Jeffry and Kristin are enabling us to attract and retain outstanding faculty — one of our highest institutional priorities,” she added.
“I wouldn’t be where I am professionally without the University of Wisconsin Law School,” Jeffry said. “Wisconsin was really good to me, and it’s a pleasure to make this kind of impact on the Law School and on the broader university and state.”
The Browns’ gift is structured as a gift of carried interest, which a private equity or venture capital fund manager receives.
The donated carried interest partnership units are illiquid, private market securities. The units are transferred to a donor-advised fund as a form of estate planning. This strategy allows the Browns to move assets with potentially high future appreciation out of their taxable estate, thus minimizing future estate and gift taxes for their beneficiaries.
The donation of private, illiquid securities is a fast-growing segment of estate planning — yet remains relatively unknown.
“Part of that is a result of how private markets have grown,” Jeffry noted. “To put this into perspective, in the United States there are about half the number of publicly traded stocks today than there were in 1997. So where is the capital? It’s in private equity and private credit.”
This is also reflected in the changing makeup of investment portfolios.
“What’s happened is a lot of people own private securities,” he continued. “These could be partnership units in funds or direct investments in startups or real estate. They own these illiquid assets, and when it comes to estate planning time, some of these are quite problematic. In our case, carried interest can create huge amounts of phantom income.”
Phantom income is income that is taxable to a person or business even though they have not received any actual cash. This creates a tax liability on “paper” gains with no corresponding cash flow to pay the tax.
When the Browns began estate planning, they first explored some of their “problem assets.”
“First on the list were our private and illiquid securities,” Jeffry explained. “In our case, because I was a founder at Dyal Capital Partners and we created perpetual no-end-date funds, the phantom income problem creates a perpetual problem for our heirs.”
“…we’ve taken this massively tax-inefficient asset and made it extremely tax efficient, and we also fulfill a key philanthropic goal: We can efficiently give this gift of carried interest to the Law School for a professorship.” – Jeffry Brown ’79
The Browns began looking for a solution and found there were surprisingly few options.
“But when we met Dominic Napolitano, we knew we had found something very special,” he said.
Napolitano is the founder and president of National Charitable Endowment, a 501c public charity, which he started after recognizing the demand for an open architecture, donor-advised fund platform to serve the needs of sophisticated donors and the ability to hold large percentages of illiquid and complex assets. He’s been in the alternative space for 40 years and is a leader in terms of figuring out what to do with problem assets, Jeffry explained.
“With Dominic’s help, we’ve taken this massively tax-inefficient asset and made it extremely tax efficient,” Jeffry continued. “And we also fulfill a key philanthropic goal: We can efficiently give this gift of carried interest to the Law School for a professorship.”
This is exactly what people should focus on when donating, explained Napolitano.
“Jeff’s a pioneer in this space,” he continued. “It positively affects your adjusted gross income and all that accrues for the Law School. It’s a win for the school and a win for the donor.”
People “really shouldn’t be freaked out about private or illiquid securities donations,” explained Jeffry. “You just need to connect with National Charitable Endowment. They are absolutely the best in this space.”
Private partnership interest or illiquid securities are a large part of people’s investment portfolios, and they may not even notice it, he explained.
“If you think about the accelerator ecosystem that’s grown up in Madison alone, everyone who’s invested in those has been granted illiquid securities,” he continued. “I guarantee there are people sitting on these illiquid securities who don’t realize they can donate them.”
It’s a “game changer” for estate planning, he continued.
“On behalf of the entire Law School community, we extend our deepest gratitude to Jeffry and Kristin for their extraordinary commitment of $1 million to establish a professorship,” said Feist.
“Their visionary generosity will have a transformative and lasting impact on our institution. We are profoundly grateful for Jeffry and Kristin’s partnership and belief in the importance of exceptional legal education. Their leadership and dedication set a remarkable example for others, and their gift will benefit our Law School for decades to come.”