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Posted: August 27th, 2021

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Donating Appreciated Stock to a Charity

Since there are various ways of encouraging you (well-wishers or donors) to channel resources toward charity organizations, donating appreciated stock is another approach that mainly focuses on business retirees. In case you intend to retire from active business activities, I advise that you need to consider donating your appreciated stock as a better way of giving. The reason is that it would offer numerous advantages in the future. Good business people should not sell their investment assets and channel the proceeds to charity. The reason is simple – you would donate little. Notably, you donate more to charity in case you offer us your appreciated stocks. As Ackerman and Auten (652) illustrated, the reason behind such an understanding is that the sales of assets normally attract taxes. Therefore, the proceeds would incur a reduction in the realized value. On the contrary, you would pay gains in taxes when you donate the appreciated stock to our charity organizations.

With finance expertise advocating for two rationales for permitting deductions on charitable donations, I view that charitable deductions have promoted dignified donations. Likewise, I view that the donors’ actions have enhanced economic efficiency since most of you have over-provided the appreciated stocks. Since many appreciated stocks are subject to taxation policy, it is prudent that donors regard the transfer of assets as a measure of benefiting the needy society, rather than enriching tax persons (Ackerman and Auten 653). Apart from that, I advise against keeping too much-appreciated stocks, thus overweighing a donor’s portfolio. Instead, I appeal that you consider donating some appreciated stocks to avoid incurring too much risk aversion costs. Nonetheless, a donor should not keep several low-basis stocks because they would attract more taxes. Therefore, I find it profitable if a calculative donor would choose to donate appreciated stocks from their taxable accounts, hence sustaining gains in capital taxes.

Donor-Advised Fund

As a donor, you need to understand that a donor-advised fund is similar to a personal savings account that you may open for charity activities. Having such an account, you would have the liberty to contribute assets, such as artwork, real estate, stock, and cash. In this setup, you would incur little costs as you would possibly obtain a tax deduction for all the contributions. This is possible because an organization that sponsors donor accounts would be responsible for controlling all the activities you undertake but in our best interests. As Sherlock and Gravelle illustrate it, community foundation manages assets and invests proceeds in donors’ very accounts (4). An example of such foundations may include Schwab or Vanguard Charitable. Therefore, donors need to understand that all these sponsoring organizations have various procedures and rules because if one follows them, there is an assured success of the funds.

Since the donor-advised funds fall into categories like single-issue funds, community-foundation, and commercial funds, both the donors and society are assured of benefits if they use funds. Well-wishers need to comprehend that donating non-cash assets is not an easy task because many charity organizations do not accept non-cash assets. Therefore, we ask all well-wishers to obtain donor-advised funds, enabling donors to make contributions that seem acceptable among charity organizations. The tax benefit is an added advantage that a donor would possibly get when he or she opens a donor-advised fund (Sherlock and Gravelle 4). Therefore, I assure donors that they would obtain immediate tax deduction once they donate donor-advised funds. Moreover, the use of donor-advised funds offers a well-wisher many alternatives to channel donations via wire transfer or cheques.

CRATS for Charities Due to the SECURE Act and Limitation of the Stretch IRA

With the Secure Act addressing wealthy retirees’ concerns with IRAs, donors do not have to fear their beneficiaries’ welfares. The entitled beneficiaries would still inherit such IRAs even if they are not spouses to the deceased or do not fall under a particular group of people highlighted by the law provided that they withdraw the proceeds within a window of 10-years (Cleveland Foundation). Previously, the IRA beneficiaries used to stretch the required minimum distribution (RMD) over their lifetimes, but now factors like chronic illness, age consent of minors, and disability matter the most.

I persuade the donors that a Charitable Remainder Trust (CRT) offers income tax deduction when embedded on an entity, such as Cleveland Foundation. Since such trust fund might be classified as either Charitable Remainder Annuity Trust (CRAT) or Charitable Remainder Unitrust (CRUT), I would help differentiate them. The first one has fixed annuity payments and relies on the original value of the trust. In contrast, the second one has annuity payments whose values are calculated as a percentage annually (Cleveland Foundation). However, a donor should have the right knowledge of how CRT is exempted from tax compliance. If the owner of an IRA mentions a CRT as its beneficiary, for example, the stretch can be brought back. Undeniably, therefore, all IRA assets added to CRT do not attract income taxes, implying that beneficiaries holding onto CRT would get capital gains.

Hence, it is wise for donors to understand that CRT offers twice as much confidence as any fund would do. The reason is that the IRA-based donor would as a priority name CRT as the beneficiary, thus implying that the CRT would offer lifelong payments to the entitled beneficiaries (Cleveland Foundation). I feel that that the balance of the assets would be channeled to charity with non-implementation of the Secure Act. Therefore, I can state that the Secure Act eliminated some barriers that previously dominated the beneficiaries’ inheritance.  

Works Cited

Ackerman, Deena, and Gerald Auten. “Tax Expenditures for Non-Cash Charitable Contributions.” National Tax Journalfor Economic Analysis of Tax Expendituresfor, vol. 64, no. 2, part 2, 2011.

Cleveland Foundation. “The End of the Stretch IRA: Charitable Solutions after the Secure Act.”Cleveland Foundation, 2020, https://www.clevelandfoundation.org/2020/02/ira-secure-act/. Accessed 9 Sep. 2020.

Sherlock, Molly F., and Jane Gravelle. “An Analysis of Charitable Giving and Donor-Advised Funds.” Congressional Research Service, 2012.