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Bill George

Harvard Business School Professor, former Medtronic CEO

Recommendations for Medtronic Shareholders

Sunday’s Minneapolis Star-Tribune contained a thoughtful article by Jennifer Bjorhus articulating concerns over capital gains taxes that Medtronic shareholders must pay when Medtronic completes its acquisition of Covidien.

As a long-time holder of Medtronic stock, here’s what I am planning to do and what I would suggest for other Medtronic individual shareholders:

  1. The easiest approach for Medtronic shareholders is to sell just enough stock to pay for the capital gains taxes, which will be 20% of the net gain to cover federal taxes. For Minnesota residents, there will be an estimated additional 8% tax depending on your income bracket. This must be done prior to the closing of Medtronic’s acquisition. Here’s my rationale: Medtronic stock is at an all-time high, so this is a good time to sell enough stock to cover your taxes. For example, if you bought your stock three years ago when Omar Ishrak became CEO, your gain is 65%. If you sell enough stock to cover the 28% tax, you still have a 45% gain in your stock value – not bad for a three-year investment – and no future capital gains taxes will be due on your 45% gain.
  2. If you can afford it, here’s an even better option that Penny and I plan to follow: give a significant portion of your stock away to your favorite charity or religious organization. Penny and I plan to give our Medtronic stock to the Penny George Institute Foundation (PGIF) at Allina Health, Plymouth Congregational Church, Georgia Tech (my alma mater for my 50th reunion), and the George Family Foundation. We plan to do this before the closing to avoid capital gains taxes. Then we will buy additional Medtronic stock in the open market as we believe Medtronic stock will be an excellent investment for many years to come.

For those of you who are interested in investing in health care and integrated medicine, here’s an additional opportunity to double your investment if you donate to the Penny George Institute Foundation: Penny and I will match any contributions of Medtronic stock to the Institute for the remainder of 2014. If you pursue this approach, you will receive a tax deduction for the full amount of your gift and avoid the capital gains tax, plus your gift will have double the value through our matching contribution.

For example, if you donate 100 shares of stock at the current market price of $64, you receive a tax deduction of $6,400 plus you avoid capital gains taxes, estimated at $720 if you bought three years ago. With our match, your gift will double in value to $12,800 for the Penny George Institute. (For more information, contact Stephen Bariteau at PGIF (Stephen.Bariteau@allina.com).

While none of us likes to be forced to pay taxes, the above approaches suggest there are ways to avoid any financial burden these capital gains taxes may impose, and potentially do a lot of good at the same time.

Thank you for considering these options.