The Gift (of Appreciated Securities) That Keeps on Giving
Some philanthropists make the mistake of selling stock, bonds or other securities in order to make a charitable gift. However, it makes much more sense to donate the securities directly to a nonprofit organization.
In our quickly-changing and volatile economy, there are many ways for donors to support their favorite charitable causes beyond the simple act of writing a check or using plastic. The last quarter of the calendar year is usually when many donors are looking at their finances and making key decisions and, perhaps, figuring out the most tax advantageous ways to fulfill their pledges. I wanted to highlight appreciated securities as a viable giving option for many donors, especially for the next few months. Recent fluctuations on Wall Street may allow many investors to give more generously.
Donors and nonprofits take note: stocks, bonds, mutual funds, or other securities that are worth more today than the day they were first obtained can represent an option for satisfying charitable commitments, but there are some restrictions to consider, including the amount of time certain investments have been in your portfolio.
Nonprofits should be making clear to current and potential donors that by using appreciated securities, they will not only gain the satisfaction of giving, but will also, essentially, receive two tax breaks for the price of one. First of all, by giving appreciated securities, the donor will receive a tax break for the full market value of the gift. Additionally, the donor will avoid paying capital gains taxes on the transfer. Most nonprofits – especially those with immediate capital needs – would then sell the securities and, in turn, incur no capital gains tax. Like any investor, the nonprofit can hold the security in the hopes that the value will increase. However, I contend that sound gift acceptance policies would dictate immediate liquidation of the gifted securities. When making a gift of appreciated securities, individuals can receive tax deductions worth up to 30 percent of their adjusted gross incomes.
Donors may choose to structure a gift like this for any number of reasons: They may not wish to dip directly into their cash reserve or make a gift from cash flow; they may want an itemized charitable deduction; or they may want to lessen the size of their estate. (Estates with a net value over approximately $5.4 million are subject to Federal Estate Tax on the amount in excess of this value. The particulars of state inheritance taxes vary greatly.)
For years, I’d hear or talk to donors who’d only learned after they’d unloaded stock to make a gift that it would have made more sense giving the securities outright. Doing so not only hits the donor with an avoidable tax, it ensures the nonprofit will possibly receive fewer charitable dollars. I’ve argued that many nonprofits, as well as tax professionals and other financial advisers, could do a better job of suggesting or encouraging the options. Too often, I heard about donors, seeking to fulfill pledges, even made the cardinal mistake of selling their stocks to free up cash in order to make a gift. But in the last two or three years, we seem to be seeing some undocumented but important shifts with donors taking advantage of acceptable shortcuts. As the stock market has remained high but volatile, donors have been savvier about making gifts of appreciated securities at the right time to maximize market value. The country’s largest donor advised funds, including the Fidelity Charitable Gift Fund, have similarly reported a major upswing in complex donations.
As anyone in the nonprofit world knows, what happens on Wall Street has a huge bearing on charitable giving. With the charitable marketplace becoming increasingly complex, I am constantly encouraging nonprofits and donors to explore creative gift solutions such as charitable remainder trusts, life insurance policies, and other legitimate options. I now call on our nonprofit leaders – along with financial advisers such as money managers, accountants, and other types of wealth advisers — to be aware of these options and to educate donors. It is also incumbent upon donors to consult with their tax professionals and financial advisers before making a complicated gift. The details matter and everyone involved wants to make sure that the donor receives the most satisfaction out of the giving experience. Yes, tax benefits are part of the equation. But a mountain of research on the subject tells us that donors are motivated to give by a sense of altruism, by wanting to contribute to something meaningful. Let’s collectively work to ensure that gifts are given in strategic ways to maximize public good.
You must log in to post a comment.