Posted December 1st, 1997

Appreciating Gifts of Securities

In most gift development programs a small number of non-cash gifts account for a significant portion of gift receipts each year. These gifts usually come in the form of publicly traded securities. In fact, statistics on gifts to higher education reveal that approximately two-thirds of the largest gifts over the last 30 years came in the form of appreciated securities. Many people are wondering what effect the recent stock market “correction” and other changes will have on such gifts.

Feeling unappreciated

Several events have occurred that have caused some to fear gifts of appreciated securities may dwindle. For instance, the reduction in maximum capital gains tax rates under the Taxpayer Relief Act of 1997 has caused many accountants and financial advisors to take the position that gifts of appreciated stock are not as attractive now as they were before the passage of the law. Some donors and their advisors are operating under the assumption that these gifts have lost their luster. In fact, making a wise gift of appreciated securities now depends upon the nature of the property and how long it has been held. Even if the property has been held longer than 18 months and qualifies for the new lower capital gains tax rate, gifts of appreciated property still represent one of the most tax-wise ways of making a gift.

Roller coaster markets

Recent stock market fluctuations have caused many investors and advisors to wonder if we are on the verge of repeating the stock market crash of 1987. Concerns over the federal reserve and a nose dive in the Hong Kong market triggered the worst single-day point drop ever in the history of the Dow Jones. Even though the next day saw the market rebound with the largest ever single-day gain, concerns about the future direction of various financial markets persist.

Donors are now uncertain about the most effective ways to reach their philanthropic objectives. Confusion regarding the changes in the tax law coupled with nervousness about the financial market could have a chilling effect on gifts of stock. Therefore it is essential for gift planners to inform and educate both donors and their advisors about how to best make gifts of appreciated property.

Gifts of appreciated securities remain one of the wisest and safest ways for individuals to make larger gifts to charities. Many individuals may find that using the appreciation element offers a way to make gifts at a lower out-of-pocket cost. Perhaps the most striking example of this type of gift concerns Ted Turner’s $1 billion charitable gift (see page 2 of last month’s Give & Take). Turner announced that he would still make this gift because he was no worse off now than he was at the beginning of the year. Several mega-philanthropists have commented that the October stock market drop would not affect the major gifts they currently have planned.

Marketing gifts of marketable securities

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Giving part of your paper profit is an idea that has long appealed to donors and charities alike. One of the primary reasons for this appeal has been the startling growth of individual ownership of stocks and mutual funds. In 1987 less than one-third of household liquid assets were held in securities, while more than 50% of household assets were held in bank deposits and money market accounts. During the past 10 years those figures have practically reversed themselves with 54% of household liquid assets held in securities and less than one-third in banks or money market accounts. This change represents an increase of more than 50% in individuals who own securities. According to the Federal Reserve Board, individuals now hold almost 50% of all stock. Therefore, since most major gift prospects own marketable securities, it is crucial that nonprofits continue to encourage gifts of stock both now and in the future. Because of the huge market sell-off in October, millions of investors generated capital gains tax. Even owners of mutual funds who did not sell may find themselves with large taxable gains because of sales made within the fund itself. One of the easiest ways to reduce or eliminate these tax bills would be to create offsetting deductions through gifts of appreciated assets.

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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