The process for donating stock varies depending on whether you are donating actual stock certificates or stock shares or mutual fund shares that reside with your broker. Don't wait until the end of December to start this process!

Ruth E. Callard, CPA, MBA
608 NE 63rd St.
Seattle, WA 98115
tel: 206-284-4163
fax: 206-632-7445
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Charitable Giving

A large survey from the U.S. Trust Company says there are six reasons that motivate people to give: desire to support worthwhile causes, responsibility to share good fortune, meet their community's critical needs, help an organization that has benefited them or a friend, set an example for children and fill gaps caused by government cutbacks.

All of these motivations for giving can be carried out more effectively using the following two examples of taxwise planning!

1) Naming non-profit organizations as beneficiaries – Donating certain assets versus others allows you to increase the amount of your gift.

Say you have $10,000 of cash and $10,000 in a Traditional IRA. You want to make a gift, at your death, to both your niece and to a non-profit charity. If you make a bequest through your will to give the cash to the non-profit, the non-profit gets $10,000. If you name your niece as beneficiary of your IRA, she would only get $7,500 ($10,000-($10,000x.25), assuming she has a 25% marginal income tax rate, because she will have to pay income tax on the IRA distribution (the IRA is Income in Respect of Decedent (IRD) and has not been taxed previously).

On the other hand, if you gave the IRA to a charity each recipient would get $10,000. That's $20,000 worth of gifts versus $17,500. This is because the 501(c)(3) non-profit charity is a tax-exempt organization and so doesn't pay income tax when it receives the IRA. (Roth IRAs, on the other hand, are fine as bequests to individuals since there is usually no tax to pay when they are distributed.)

Income in Respect of   Decedent (IRD) assets are taxed when distributed after death, unless left to a non-profit charity. Examples of IRD assets are traditional IRAs, SEPs, 401(k)s, accrued interest on savings bonds, installment notes and trade or business accounts receivable.

Many of the common IRD assets allow you to name a beneficiary when you set them up. This means that even if you haven't yet found the time to make out a will, or to make out a succession plan for your business, you can make a taxwise gift to charity by simply filling out the beneficiary form! (Note, if you are married, your spouse's consent may be required in order to name a charity as beneficiary of a qualified retirement plan.)

If you have only the IRA account to give and want to give half to your niece and half to a charity, you will want to sub-divide the IRA into two accounts to make sure that your niece has the option of deferring the income taxes she must pay. (You can sub-divide the accounts while you are alive, or your estate administrator can sub-divide them up until September 30 of the year following your death.) You can have more than one primary beneficiary on a retirement account.

Your niece can defer the income taxes by deferring the distribution over a period of years using the required minimum distribution (RMD) rules for an individual beneficiary.   

It's important to also name a contingent beneficiary or two, in addition to a primary beneficiary, in case one or more of the primary beneficiaries do not exist at the time of your death. Naming a charity as the contingent beneficiary affords the same tax advantages explained earlier.

You may want to use a beneficiary form different than the one provided in the investment institution's prototype form in order to be able to be specific about how you want the retirement plan distributed after your death. Sometimes those forms don't have much room on them. It's best to indicate the Federal ID number, in addition to the name, of the non-profit. You can easily change the beneficiary if you need to.

2) Giving appreciated assets

Why give appreciated assets? Again, you can increase the size of the gift. For example, if you sell 100 shares of Company X stock, you will pay tax on the difference between $10/share (original cost) and $69/share (fair market value). Even with the 15% long-term capital gain rate you will have less to give than if you gave the 100 shares directly to the charity. This is so because when you give the shares directly to the charity you avoid the income tax on the appreciation of the stock. The same applies for appreciated mutual fund shares.

From the following illustration, you can see that by donating shares directly to charity, your net outlay is $6,900, versus $7,790 if you sold the shares and donated the proceeds.

Here's how it works if you have a 25% marginal income tax rate, you have not already made charitable gifts in excess of 30% of your adjusted gross income and you have held stock for more than one year :

The two ideas presented above can be useful for you as you think about your whole financial and tax situation, and should be kept in mind with proper estate planning. Remember also that charities themselves can help you with planned giving. Many charitable organizations even allow you to be involved in deciding what projects they will fund, depending on your level of giving and on your level of interest in being involved with the charities themselves.