What to do now
The end of the year is the perfect time to review the status of organizational accounts with leading brokerage houses. You can complete or update the necessary forms and make certain advance decisions, such as determining your organization’s policy on whether or not to immediately sell donated securities. You will also need to obtain your primary service provider’s Depository Trust Corporation (DTC) number, which is similar to a bank routing number. Donors will need the DTC number so that their representatives can transfer shares electronically to your organization’s account.
The better prepared you are when a donor decides to make a gift of securities, the more professional you will be in handling these transactions. This builds greater confidence in your institution in the mind of the donor.
Taking stock—a check list
1. Who owns the security? If it is jointly held, for example, both parties must sign a properly executed stock power that allows for the transfer of their stock.
2. How is it owned? The way a security is transferred changes depending on whether the donor holds the actual certificate or the asset is 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 and then hand deliver or mail a properly executed stock power that allows for the official transfer of the stock 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 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, it is not clear whether the gift is complete on the date of transfer out of the donor’s account or the date of receipt by 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.
- 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 gift was received.
- If a value 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 are encouraged to seek their own counsel in tax matters.
5. If property has 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 proceeds.
6. Be sure the broker understands instructions to transfer the asset itself and not to sell the securities and donate the proceeds. This is unfortunately a common mistake and one that results in capital gains tax for the donor.
Stocking up in December
As you approach the holiday season and the end of the calendar year, act early and decisively to be ready to accept the increased gifts of stock and other property that may be coming your way. Both your donors and your organization will benefit from having clear and effective procedures already in place.