1. Who owns the security? If it is jointly held, for example, both parties must sign a stock power or letter of instruction to their broker. If the securities are held in a living trust, the trustee must initiate the transfer.
2. How is it owned? The way a security is transferred depends on whether the donor holds the actual certificate or the securities are held in the donor’s brokerage account.
- If the donor holds the certificate, the donor should hand deliver or mail it to the charity in one envelope. A stock power kept blank except for the signature and date should be mailed in a separate envelope.
- For securities held in brokerage accounts, the donor should instruct his or her broker in writing to transfer the asset to the charity’s account or brokerage firm.
- If the donor wishes to give a mutual fund, the charitable recipient may be required to open an account with the fund in order for shares to be transferred without triggering capital gains for the donor. Certain funds can be transferred in much the same manner as individually traded securities.
3. When is the gift complete? This question is not as simple as it may seem. The general rule is that the gift is complete when the donor has irrevocably relinquished all ownership and control over the property.
- If hand delivered, the gift is complete upon delivery.
- If the certificate and stock power are mailed separately, the date of gift is the latter of the two postmarks. For this reason, it is important to keep all envelopes associated with stock gifts.
- If delivery services other than the U.S.mail are used, the gift is not complete until the shares and stock power are received by the charitable recipient.
- If a broker is given transfer instructions, the gift is generally complete when assets are actually transferred into the charity’s account. In the case of a DTC transfer, the gift is complete on the date of transfer out of the donor’s account and into the charity’s account.
4. What is the value of the donor’s gift? Gift value for the donor’s tax purposes is determined on the date of the gift and is not related to the value the charity receives upon selling the property. For publicly traded securities, the value is the average of the high and low quotation on the date of the gift. This makes the date of the gift doubly important as it can determine the value of the gift as well as whether the gift was received by deadlines for tax deductibility. Gifts of anon-publicly traded security may require a qualified appraisal (see IRS Form 8282 and instructions).
- Establishing value for tax purposes is ultimately the donor’s responsibility.
- The charity should acknowledge the gift by describing the assets contributed (number of shares, etc.) and the date the securities were received.
- If a value of the amount actually realized by the charitable recipient is stated as a matter of convenience and to indicate the amount of credit being given to the donor for his or her gift, a disclaimer should always be added. The disclaimer should state that donors should not use this value for purposes of tax deductions and are encouraged to seek their own counsel in tax matters.
5. Be sure the donor instructs his or her broker to transfer the securities and not to sell them and transfer the proceeds. This is unfortunately a common mistake and one that results in capital gains tax for the donor.
6. If securities have decreased in value, donors should generally be advised to sell the securities themselves so they may be able to claim all or a portion of the loss for tax purposes and then give the cash proceeds.