This year may shape up to be a banner year for gifts of stock and other appreciated securities. As in years past, many of these gifts will be received in the closing weeks, days or even hours of the year. With adequate preparation, stock gifts can be quickly processed and put to work for your organization.
What to do now
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. Keep the following checklist in mind.
- Who owns the security? If it is jointly held, for example, each owner must sign a properly executed stock power that allows for the transfer of stock.
- 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.
- For securities held in brokerage accounts, the donor should in writing instruct his or her broker to transfer the asset to the charity’s account or brokerage firm.
- If the donor holds the certificate, the donor should hand deliver or mail it to the charity in one envelope and then separately hand deliver or mail a properly executed stock power that allows for the official transfer of the stock.
- 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.
- 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 a financial institution is given transfer instructions, the gift is generally complete when assets are transferred into the charity’s account.
- 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.
- 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 determining value for tax purposes.
- Has the property decreased in value since the donor acquired it? If so, 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 make a charitable gift of the proceeds.
- Do you have appropriate contact information and other details regarding stock gifts on your website? Make it as simple as possible for donors to find answers to their questions about making gifts of stock.
- Be sure the donor and the financial advisor understand instructions to transfer the appreciated 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.
The holiday season and the end of the calendar year are quickly approaching. 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.
Sharpe Group has a number of publications designed to help your donors plan and execute charitable gifts of stock. Call 901.680.5300, email info@SHARPEnet.com or visit www.SHARPEnet.com for more information.