If a client wants to donate $1,000 to her alma mater, the simplest strategy may be to just write a check. But she might also consider giving the school, say, $1,000 worth of Apple shares she bought years ago for $200.
Those shares may be worth $850 or $800 or even less to her, after tax on a sale, yet she'll get a $1,000 tax deduction for the charitable gift. And she'll still have that $1,000 in her checking account, because she made her donation from appreciated assets rather than cash.
Clearly, donating appreciated securities can be a savvy move. But how can advisors help clients make such a gift? "Contact the charity directly, to walk through its process," says Ben Hockema, senior financial planner in the Park Ridge, Ill., office of Deerfield Financial Advisors. "All major charities have experience in these types of gifts, so they will have their own procedure they'll want you to go through."
The procedure might involve getting the charity's brokerage account number in order to execute the share transfer. Clients who want to donate mutual fund shares may find that the fund company has its own forms, to be signed by the donor and the charity's representatives.
Donors can deduct the full value of the appreciated stock only after they have held it for more than one year. In-kind donations may be time-consuming, so it's best to start the process well before the end of the year in order to get a tax deduction for the current year.
"Donating appreciated securities can have a significant advantage outside of the tax benefits," says Ryan Monette, a financial planner with Savant Capital Management in Rockford, Ill. "I have seen instances where an individual had a large concentrated position, which could cause significant risk in a down market. Donating stock from a concentrated position can reduce that exposure."
Indeed, donating rather than selling appreciated securities that have lost ongoing appeal may be a good exit strategy, regardless of whether the client holds a heavily concentrated position.
Beyond publicly held stocks and fund shares, other types of appreciated assets can also be donated in order to avoid owing tax on a sale. Monette mentions private company stock, restricted stock and partnership interests.
"There could be extra steps to donating such assets outright to a charity," he says. For non-public stock or partnership interests, significant information about the value might be required."
Smaller charities may not have the means to review the information or hold such assets, Monette notes. Such problems likely can be overcome, he adds, by giving them to a donor advised fund that has such expertise, and subsequently making a gift to the ultimate charity.
Donald Jay Korn is a Financial Planning contributing writer in New York. He also writes regularly for On Wall Street.