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By Robert R. Sharpe, Jr.
Be prepared for a response like
that from your peers if you suggest
that now may be a good
time to encourage gifts of securities. But
this might not, in fact, be such a far-fetched
idea.
We all know the roller-coaster ride
the markets have taken us on over the
past two and a half years. After reaching
an all-time high of over 14,000 in October 2007, the
Dow shed some 55% of its value to reach its low point
of just over 6,500 in March 2009. Then between March
of last year and late February 2010, the Dow rebounded
to the 10,400 range, a 60% increase.
For every seller, there’s a buyer
Keep in mind that whenever someone sells stock,
someone else is always buying. Some investors bought securities as the market was on the way down and have
continued to buy as stock values have gone back up.
Such persons may own a number of stocks that have
risen in value significantly since they bought them a
year or more ago.
Those responsible for fund raising, particularly
those whose duties include encouraging planned and
major gifts, may be able to take advantage of this
resurgence as an opportunity to promote gifts of appreciated
stock. Keep in mind that securities and other
qualified properties that have increased in value and
been held for at least a year and a day can be deducted
at full market value. Because a gift is not a sale, no
capital gains tax is due on the increase in value.
For example, Jordan is in the 35% income tax
bracket and would encounter a 15% capital gains tax
rate if he sold appreciated stock. He would like to make
a $10,000 gift to a charitable interest. Instead of cash,
Jordan decides to give securities purchased last March
at a cost of $6,000 that are now worth $10,000. The
charitable organization sells the securities, pays no
capital gains tax, and receives $10,000 from the sale, less expenses. Jordan receives a charitable income tax
deduction in the amount of $10,000 and pays no capital
gains tax on the sale of the securities, saving $600. The
cost of the gift net of all tax savings has been reduced
to $5,900 ($10,000 - $3,500 - $600), a savings of $600
over a comparable gift of cash. [To enter another variable
to determine savings in a particular situation,
visit www.sharpenet.aboutgiving.net
and click “what
to give.”]
In today’s more cost-conscious environment, many
donors are discovering the benefits of making larger
gifts in this way. In a recent Chronicle of Philanthropy
article, Sarah Libbey, President of the Fidelity Gift
Fund, relates that in November 2009, “gifts of securities
were 275 percent greater in value than those received in
November last year [2008].” See www.philanthropy.com
for the full article, “Emerging Forces: What the nonprofit
world will face in a new year,” December 10, 2009.
Consider also that most gifts of appreciated securities
are made by older donors. According to the IRS,
in 2006 some 80% of the total value of gifts of securities
came from persons over age 55 with 60% made by
those over the age of 65. Donors who are retired and
no longer giving from earned income are more likely to
have securities that have appreciated in value over the
longer term and may be looking for ways to complete
gifts that also result in maximum tax savings. See the
November 2009 issue of Give & Take for details.
Older donors may also be more interested in using
appreciated but low-yielding securities and other
appropriate property to fund gift annuities, charitable remainder trusts, and other gift plans that allow them
to give and enjoy immediate tax savings, while also
increasing their income in retirement.
Keep in mind also, as noted on page 4, that donors
who are considering converting a traditional IRA to a
Roth IRA may find that a gift of appreciated securities
held outside their IRA may be an especially advantageous
way to give while offsetting tax that would
otherwise be due on the Roth conversion.
In some cases donors who believe that a security
may increase in value in the future should consider
using it to make charitable gifts while immediately
repurchasing the security using cash they might have
otherwise donated. When the dust settles, they will
have made their gift, paid no capital gains tax, and will
own the same number of shares with a new, higher cost
basis. On the other hand, if a security has declined in
value, a donor may wish to sell it, lock in the loss for
tax purposes, and make a gift using the cash proceeds.
As always, donors should consult with their advisors
before deciding the form and timing of their gifts. Keep
in mind, however, that many donors are not aware of the
best ways to make gifts, whether now or as part of their
future financial plans, and will appreciate tips for ways
they can continue to support your programs in light of
their overall financial circumstances.
Note: Choosing the best properties to give is one of
the topics covered in Sharpe’s popular upcoming seminar
“Integrating Major and Planned Gifts.” See page 3
for details.
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