Using appreciated equity for charitable giving

The devastating events locally and globally this year have created heightened desire with many of our SVB Private clients to help. One way our clients do so is by donating equity with embedded capital gains to charity by the end of the tax year. With the current long-running bull market, many investors hold stock that has significantly appreciated in value. Additionally, the anticipation of tax changes and budget cuts make this a particularly good year for charitable donations.

Below are three ways many of our clients use to maximize their charitable giving. We also provide some considerations around giving globally. As you make a difference in the world, we can help you identify and execute on creative ways to implement your bold ideas quickly.

Please note that when making charitable contributions of public securities, up to 30% of a donor’s adjusted gross income can be claimed as an itemized deduction, and any unused deduction can be carried forward for five (5) years. We are happy to work alongside your tax advisor to determine if any of these strategies can work for you.

  1. Give appreciated securities directly to charitable organizations. In addition to cash contributions, most charitable organizations have the ability to accept contributions in the form of publicly traded securities - you just need to ask. In most cases, you’ll receive a deduction of 100% of the fair market value of the security donated without paying capital gains on the appreciation. Effectively, this allows you to contribute more value to the charity than if you sold the shares, paid the applicable taxes and donated the remaining cash.

    For Example: if you purchased 200 shares of Apple in 2010 at $50.00/share, today that $10,000 investment is worth approximately $31,400. If you sell the shares first, you would pay (in CA, depending on your tax bracket) approximately $7,000 in taxes and only contribute about $24,500 to the charity. If you donate the shares directly, you would have a charitable deduction of $31,400 and the charity would receive the full amount to put to work.

  2. Use a Donor Advised Fund (DAF). When you contribute to a Donor Advised Fund, you immediately become eligible for a tax deduction on the contribution in the year donated, while maintaining control of the “spigot” for granting to eligible charities from the DAF account. While your contribution for tax purposes is tied to the year it was donated, your contributions can be made over several years and to multiple 501(c) 3 organizations. You get an added benefit of not having to pay capital gains tax when you use highly appreciated securities as your donation. The shares are sold within the fund and the proceeds managed according to your instructions. It is a particularly elegant solution for individuals trying to match contributions to high income years. Many of our clients start with a DAF, then as their taxable estates grow, they add on more complex charitable planning, such as private foundations or a charitable trusts (i.e, charitable remainder annuity trust (CRAT) or charitable remainder unitrust (CRUT ).

  3. Give private securities or fund interests. Private securities, carried interest, and restricted stock are all potentially eligible for donation with careful tax and legal planning. Contributing these types of assets is a complex transaction, so you should consult your legal, tax, and financial advisors. Our team will work with you on private assets gifts. Obtaining a qualified valuation for the securities being donated is typically required along with consideration of voting and ownership rights. Not all charities have the administrative resources to accept and liquidate such assets; however, many large public charities and many DAF programs are often able to accept these assets.

Giving globally

One of the more difficult challenges that many of our clients face is how to give money to international charities (charities that are not 501(c)3 organizations) and still receive a tax benefit. Many DAFs have the capabilities to help you “vet” international charities. There are also foundations that are 501(c)3 qualified, that can help ensure your donations go to specific needs in specified countries. So, as we aid you in making a difference, we encourage you to consider both US and international recipients and to plan sooner, rather than later.

We know you create an impact in the world with your professional and personal endeavors. SVB Private is here to help you discover efficient and effective ways to help you give back.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of Silicon Valley Bank, a division of First-Citizens Bank and First Citizens BancShares, Inc. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein.