Gifts of cash or stock: Is it a toss up?

Turbulent economic conditions, concerns about inflation, and challenges in the banking sector are just a few of the factors that cause donors to be more financially conservative and perhaps begin to evaluate whether to keep their charitable giving at the levels of years past.

At the same time, many of your clients deeply understand the need to support the nonprofit sector and continue giving to the organizations they love. Philanthropic support to these organizations remains critical to maintaining and improving the quality of life in our region, with the number of households giving to nonprofit organizations declining by more than 16% over the last three years. 

As you touch base with your clients this summer about their charitable giving budgets for 2023, evaluate the types of assets best suited for each particular client to give to the nonprofits they love. In some cases, it will be best for your clients to give cash. In other cases, stock will be more appropriate. 

For example, as interest rates and inflation continue to increase clients’ concerns about their household finances, you and your clients may decide that preserving cash is a priority. This means that some of your clients who have typically given cash to their favorite nonprofits or to their Donor Advised Funds at the Foundation may be reluctant to do so this year. There’s a silver lining here because giving appreciated, publicly-traded stock to nonprofit organizations is a highly effective tax strategy in any economy. Capital gains tax is avoided when your client transfers long-term, marketable securities to a fund at the Foundation or other public charity. The client is typically eligible for an income tax deduction at the fair market value of the securities, and when the charitable organization sells the securities, that organization does not pay capital gains tax. This provides a win-win for your client and the organization. And even in a rocky stock market, not all stocks are down. Many of your clients are no doubt holding long-term stock positions that have appreciated substantially since purchasing, even with the current stock market malaise.

For some clients whose portfolios are down significantly, this may be a year to consider contributing cash to a Donor Advised Fund instead of donating highly appreciated stock (which may have been these clients’ go-to gift for so many of the last several years). Gifts of cash could reduce the burden on a client’s personal stock positions that may have fallen in value dramatically, giving these positions more time to recover value and, at some point in the future, be contributed to a Donor Advised Fund at a higher value (thereby resulting in a higher tax deduction for the client). 

Overall, in turbulent times like this, Donor Advised Funds at the Foundation can come in especially handy. Now is the time to discuss charitable giving with those clients who regularly added to their Donor Advised Funds throughout the market’s long bull run. If these clients intend to ride out today’s market conditions in their personal portfolios, an up-and-down stock market doesn’t mean the clients’ 2023 charitable giving must take a hit. These clients can use their Donor Advised Funds to support their favorite organizations, sometimes even at levels consistent with prior years. 

As always, please reach out to the Foundation to discuss options for your clients’ charitable giving. We are happy to help you help your clients achieve their goals, even through a bumpy 2023! 

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