Emily wasn’t sure if she had the resources to open a donor-advised fund. She wanted to join DonorsTrust’s Novus Society for younger givers, but setting aside the money to start an account and make gifts seemed tough. But then she remembered that stock….
Nearly two decades ago, she convinced her parents to buy her a few shares of a stock. After all that time sitting, it had grown into something that would let her be far more charitable than she initially considered.
That compound interest truly is a magical force. With a mix of time and a touch of good fortune, a small amount of money can become quite significant.
What does that have to do with giving money away? Plenty. One of the most overlooked means of supporting charity is with appreciated stock. Donating stock offers you both short- and long-term benefits for your philanthropy.
Donor-advised funds in particular offer a helpful tool for those interested in giving appreciated stock. With a DAF, a donor can make one charitable transfer – from a brokerage into the donor-advised fund account. The fund provider liquidates the stock, giving you a pool of charitable resources to recommend out to charity. Contrast that against sending individual stock transfers to each individual charity, some of which may not have the capability to accept such gifts in the first place.
But donor-advised funds give a donor the ability to leverage the market on the other side of the gift as well. With most fund providers, dollars in an individual’s donor-advised fund account can be invested in a number of options, including managed funds, index funds, and even, with some providers, alternative investments. For charitable resources you aren’t looking to spend immediately, this ability to invest means you can give away more than your initial gift would suggest.
The Benefits of Giving Appreciated Stock
Let’s look more closely at why gifting stock and leveraging the investment options at donor-advised funds are such smart ways to give. There are two short-term reasons and one long-term one.
The number one reason people donate stock instead of cash for their charitable giving is as a way to maximize their tax benefit. When you donate stock, you may take a charitable deduction on the full value of the stock on the day you gifted it (always work with your tax advisor to appropriately value the donation).
Bought 100 shares of ACME Inc at $100 and now it’s trading at $200? Donate the stock to open a donor-advised fund and you’ll have an account twice as big as your initial cash outlay, and avoid paying capital gain tax on the appreciated $10,000.
Tax saving are great, but the reason to gift stock is to have a philanthropic impact. As the example above suggests, gifting stock may also allow you to donate more than you otherwise might, and therefore do more good in the world.
If you are like Emily from the beginning of this post and are rich in charitable aspirations but less rich on cash flow, a gift of appreciated stock will let you dive into giving (while still paying your bills).
Give a Big Gift Later
Gifts of appreciated stock allow you to give more on the front end. Investing the proceeds while the money sits in your donor-advised fund allows you to save for a larger gift down the road.
Perhaps you’ve long aspired to give a significant thank-you gift to an organization that helped you in a time of need, or perhaps you know your church is a few years away from a capital campaign and you want to make a sizable contribution to the effort. Whatever your motivation, leveraging the power of compound interest by investing a portion of the funds in your DAF enable you to dream big.
Considerations for Gifting Stock
Think the idea of gifting stock could be something you’d like to explore? If so, here are a few things to know before you make a charitable gift of appreciated stock:
- Note the word “appreciated.” While you technically could give a gift of a stock that has lost money, financial prudence would point you to giving something that is appreciated to receive the maximum tax benefit.
- Any appreciated asset you give must have been held by you for at least one year.
- Stock gifts can take time. Each brokerage is different – some turn around gifts in a day or two and others require more lead time to get the transfer done, especially at the end of the year.
- Do not liquidate the stock before you transfer it. Transfer the holding, not the cash, or else you’ll pay capital gains tax.
The power of markets to create growth never ceases to amaze me. Lots of donor-advised funds benefit from the power of markets. DonorsTrust uniquely doesn’t just leverage that power but also encourages donors to support the very principles of a market-based economy.
Markets and capitalism truly work to lift everyone up over time. Use that powerful growth to strengthen your philanthropy and create a snowball effect to grow your charitable impact.