Maximizing Charitable Gifts

By Lucy Williams on June 13, 2019

Lucy Williams
When we think of charitable giving, it usually means writing a check to a charity, taking whatever tax deduction is allowed, and feeling the joy of donating to a good cause. But did you know that for those who are charitably inclined, a gift of stock, rather than cash, can be beneficial for both the donor and the charity?

This is because, when you donate appreciated securities, you avoid capital gains tax on the amount of appreciation, and your gift ends up being greater in value than if you had sold the stock and donated cash from the sale. And, just like a cash donation, a qualified nonprofit won’t have to pay taxes on a gift of appreciated stock, either.  

 

What are some rules of thumb for people who already give to charity and want to maximize the benefits for themselves and their favorite nonprofit organizations?

 

  • First, it’s important to note that this should not be a standalone tax strategy, but one piece of an overall financial plan that includes charitable giving as a primary goal.

 

  • The key is to donate appreciated stock, versus stock that has declined in value, since one objective is to avoid capital gains. The charity gets the full fair market value, and you don’t get dinged by Uncle Sam. It’s a win-win.

 

  • Different types of securities other than shares of publicly traded stock can be donated, such as exchange-traded funds (ETFs), mutual funds and closely held stock.

 

  • Most charities will sell the stock upon receipt, so they can immediately put your gift to good use.

 

  • Some investment firms have an arrangement with a broker to transfer stock to a charity’s investment firm. If the charity doesn’t have a brokerage relationship, some firms, such as The Trust Company, will facilitate the sale and send a check to the charity.

 

  • Depending on your personal situation, you may be eligible for additional tax savings which could include a deduction for the full fair market value of the securities.

Speak with a financial professional if this seems like an attractive strategy. The Trust Company’s advisors are happy to explore whether it’s right for your unique financial situation and goals.

Lucy Williams, CFP®, Vice President & Trust Officer, specializes in wealth management for her clients with expertise in investment management, personal trust administration, and financial planning.