Stocks and mutual funds make great charitable gifts, yet many non-profits overlook them; and, donors may not think to make those kinds of donations, unless you remind them.
Once donors learn about the tax advantages of donating stock, they often become consistent stock donors.
Stocks and mutual funds are securities that represent an ownership interest in a single corporation (stock), or an interest in many corporations (mutual funds). Appreciation is when a stock or fund grows in value, which often accounts for most of the profit from investing in a stock. Some stocks pay dividends (a share in the corporation’s profits) to stockholders, some don’t.
Most securities are publicly-traded, which means they are bought and sold daily in an exchange or active market. The fair market value (FMV) of a publicly-traded security or a mutual fund is fixed daily by the buyers and the sellers. You can look these up in the Wall Street Journal and many other newspapers.
Publicly-traded securities make great charitable gifts for a number of reasons:
• They are easy to accept and liquidate.
• They are easy to value, as the IRS accepts the market price for
the determining the charitable deduction. (To calculate the gift
value for a stock, you take the average of the High and low
selling prices on the date of the gift. The value of a gift of mutual
fund shares is the closing price on the day of the gift.)
• If highly-appreciated shares of stock or a mutual fund are donated
directly to a charity, the donor earns an income tax deduction
based on FMV of the shares, yet pays no capital gains tax.
Your donors may find this a very attractive alternative to making a
cash gift, especially if they own highly-appreciate stocks.
It is often more of a tax advantage to contribute appreciated stocks
or mutual fund shares instead of cash. Many people hold on to
highly-appreciated stock to avoid the capital gains tax that would
be due if they sold it. This is increasingly important, as the top
capital gains rate has recently risen to 20% and that does not
include state taxes that may also apply.
• Publicly-traded securities can also fund life-income gifts like
charitable remainder trusts and gift annuities (more on those
topics in a future posting). A donor can convert an appreciated
stock with low or no dividends into a steady stream of lifetime
payments and earn a sizable tax deduction. If you do not offer
these gift arrangements, try working with your local community
foundation. They can often set them up for you and manage
Before you can accept stock and mutual fund donations, you’ll need to set up an investment account. You can do this at many financial institutions, like banks and online discount brokers. Once you’ve done that, you should earn how to transfer donated securities into that account. Most securities are now transferred electronically, directly from the donor’s account.
Many mutual fund shares can be transferred just like stocks. Other funds are proprietary and cannot be held in standard investment accounts. In those cases, you may need to an open an account with the mutual fund company to liquidate the shares. Your investment account manager can guide you through this.
Once you start accepting donations of stocks and mutual funds, if you don’t already have one, you will need an Investment Policy Statement. This defines how your Board of Trustees will govern/manage the organization’s investments. This can get complicated if your organization maintains a stock portfolio, so you may wish to adopt the simple policy of liquidating every donated share to cash as soon as it arrives in your account … but that’s a conversation you should have with your financial advisor(s).
Next Week, another insightful piece from K. Michael Johnson
on how Millennials can grow in the Development field.
John Elbare, CFP, has spent the last 30 years helping non-profits
raise more money through large, planned gifts.
He shows them how to add an effective planned giving
strategy to their current fund raising effort
without a lot of extra expense or staff.
You can contact him at John Elbare, CFP.
Have you seen
The Fundraising Series of ebooks?
They’re easy to read, to the point, and inexpensive ($1.99 – $4.99)
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