Posted July 7th, 2017

When Giving Away a Favorite Stock Is the Smartest Thing to Do

Last month we examined charitable giving strategies for donors who are nervous about the current stock market valuations and concerned that the bull market may be overdue for a correction. But what about donors who believe that economic growth and business/consumer-friendly tax reform will continue to drive the stock market to new heights?

You may have donors who own securities that have performed particularly well over the years. Many of those donors can be reluctant to sell or give the stock because they want to hold that investment as part of their portfolios. Fortunately for you and them, there is a charitable gift planning strategy that allows them to make a gift of that security and, in effect, maintain their ownership position.

How it works

For example, suppose an individual has been considering a cash gift of $25,000 to your organization. Instead of giving cash, she decides to give stock currently worth $25,000 for which she originally paid $5,000 several years ago. She may then use the $25,000 cash she did not donate to repurchase shares in the same company.

In this way, she can make a tax-deductible gift of $25,000 with stock that originally cost just $5,000. Since this was a charitable gift, she does not owe capital gains tax on the $20,000 of appreciation. By repurchasing the stock, she still owns shares but with a new, higher cost basis of $25,000. If the value of the stock increases in the future, she will have less reportable capital gain if it is ever sold. If the stock declines in value, she may be able to claim a capital loss.

While no one can accurately predict how the stock market will perform, there are really only three possibilities: stocks may grow in value, maintain the same value or decline in value. Those who carefully consider the interrelation of their gifts and financial planning strategies may be able to achieve multiple goals and enjoy unexpected benefits as a result.

What you can do

Charitable entities that inform, educate and motivate their affluent donors about gift strategies that also help meet donors’ personal financial objectives will be more likely to reap the full benefits of the current bull market. According to IRS studies, gifts of publicly traded securities are the number-one source of noncash charitable gifts each year and regularly yield more gift income than total realized bequests. Do you have a plan in place to promote these gifts and receive your share?

To learn more, consider attending the “Structuring Blended Gifts” Seminar in New York, August 10-11. Click here for details. ■

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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