You’re well aware that donating highly appreciated stock to a charitable fund at the Sacramento Region 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 understanding the reasons a client might be reluctant to part with certain stocks in the first place:
- 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 can create psychological barriers to effective charitable planning. There is, however, a potential solution that can satisfy both emotional needs and philanthropic goals: The client donates shares of the highly-appreciated, emotionally significant stock to their charitable fund and then purchases shares of the same stock in their personal investment portfolio.
Here’s why this can be an effective strategy:
- Maximize tax deductions: Publicly-traded securities are typically deductible at fair market value (and the tax savings could potentially help fund the repurchase).
- 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.
- Emotional satisfaction: Clients can support nonprofits while maintaining their shareholder status in the company they like.
- Community impact: The Foundation can sell the donated shares tax-free, thereby maximizing the proceeds flowing into the client’s fund used to support their favorite causes.
As you share this strategy with a client, be sure to acknowledge the emotional value of the stock and emphasize the client’s opportunity to maintain ownership in the company. Show you client how the tax benefits of giving stock allow them to make an even bigger difference than if they’d given cash instead.
As always, we can help you assist your clients with selecting the best assets to give, evaluate tax implications of various giving strategies, and structure gifts to achieve strong community benefit. We look forward to a conversation!