Gifts of Appreciated Stock: Picking Favorites
You’re aware that donating highly appreciated stock to a fund at the Community Foundation offers significant advantages for your clients over making cash gifts. Communicating this benefit, however, can be challenging when clients have emotional attachments to their shares. How do you start the conversation?
Understanding the reasons a client might be reluctant to part with certain stocks in the first place is crucial. A sense of legacy given that the stock has ‘been in the family for years,’ a sense of company loyalty to where the client worked for decades or just simple preference are all reasons that can create barriers to effective charitable tax planning.
Castle Point Wealth Advisor’s Kendall King talks tax-wise giving.
There is, however, a potential solution that can satisfy both your clients’ emotional needs and their philanthropic goals: They can donate shares of the highly-appreciated, emotionally significant stock to their fund at the Community Foundation. Then, they can purchase shares of the same stock in their personal investment portfolio.
Why is This an Effective Strategy?
- Maximize tax deductions: Publicly-traded securities are typically deductible at fair market value, and the tax savings could potentially help fund the repurchase.
- Reset cost basis: This transaction effectively resets the cost basis of the stock in the client’s personal portfolio to its current market price, potentially reducing future capital gains taxes.
- Emotional satisfaction: Clients can support charities while maintaining their shareholder status in the company they like.
- Community impact: The Community Foundation can sell the donated shares tax-free, thereby maximizing the proceeds flowing into your client’s fund. The fund, in turn, can be used to support your client’s favorite causes.
As you share this strategy with a client, be sure to acknowledge the emotional value of the stock and emphasize the client’s opportunity to maintain ownership in the company. Building on this, you can show your client how the tax benefits of giving stock allow them to make an even bigger difference than if they’d given cash instead. As always, the Community Foundation can help you assist your clients with selecting the best assets to give to charity, evaluate tax implications of various giving strategies and structure gifts to achieve strong community benefit.
The team at the Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting or financial planning advice.