Maximizing Charitable Giving: The Benefits of Donating Appreciated Stock

Advising may sound like a very rational job, but anyone who has done it knows that it can bring up a whole range of emotions in clients. Confronting mortality, addressing complex family relationships, and discussing money can all be difficult topics to cover, especially when you have a charitable client who is devoted to a particular stock and may be reluctant to take the tax-savvy step of giving it to charity.

Emotional Attachments to Stock

You may understand donating highly appreciated stock to a fund at the Athens Area 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 can you overcome this hurdle and help optimize your clients’ charitable giving strategies? Start by acknowledging the reasons a client might be reluctant to part with certain stocks in the first place. Some of the most common can look like:

Legacy: “These shares have been in my family for generations.
Professional: “I worked at this company for decades; it’s the source of my wealth.”
Simple preference: “I just love this stock.”

Emotional ties like these can create psychological barriers to effective charitable planning. There is, however, a potential solution that can satisfy both your clients’ emotional needs and their philanthropic goals: The client donates shares of the highly-appreciated, emotionally significant stock to their fund at the Community Foundation (or passes through the gift of stock from the Community Foundation to nonprofits they choose), and then the client purchases shares of the same stock in their personal investment portfolio.

The Benefits of Donating Appreciated Stock

The strategy of donating this stock and then keeping some in a personal portfolio can have numerous benefits for clients.

Maximize Tax Deductions

Publicly traded securities are typically deductible at fair market value, and the tax savings could potentially help fund the repurchase. This means that clients can take a full deduction for the appreciated value of the stock, not just what they initially paid for it.

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. By donating the appreciated stock and then repurchasing it, clients can enjoy the emotional satisfaction of maintaining their investment while benefiting from a higher cost basis.

Emotional Satisfaction

Clients can support charities while maintaining their shareholder status in the company they like. This dual benefit allows them to contribute to causes they care about without feeling like they are losing a part of their legacy or their connection to a company they have a personal attachment to. It’s a win-win scenario that aligns their financial goals with their philanthropic intentions.

Community Impact

The Community Foundation can sell the donated shares tax-free, thereby maximizing the proceeds flowing into the client’s fund. This fund, in turn, can be used to support the client’s favorite causes. By working with the Community Foundation, clients ensure that their charitable contributions have the maximum possible impact, free from the burden of capital gains taxes.

Structuring Gifts for Strong Community Benefit

As always, the Athens Area Community Foundation can help you assist your clients with structuring gifts to achieve strong community benefits. We offer expertise and resources to help navigate the complexities of charitable giving and ensure that clients’ philanthropic goals are met in the most tax-efficient manner possible.

We look forward to a conversation about how we can support your efforts to guide clients in making impactful charitable gifts. Together, we can create a lasting legacy that benefits both your clients and the community.

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