Considering Making a Gift of Publicly Traded Appreciated Securities

Analyzing Your Particular Situation

Gifts of publicly-traded appreciated securities, stocks or bonds, can be a win-win situation for everyone! Typically, neither the donor nor HeartFit For Life has to pay the federal and state capital-gains tax that normally would be due on the sale of an appreciated security. Furthermore, the donor usually can deduct from his/her income the fully appreciated value of the gifted security. This means that the HeartFit For Life receives more money than if the security were first sold by the donor and the after-tax proceeds donated–or conversely a given donation of security will actually cost the donor less than the same donation in cash. You and HeartFit For Life come out ahead.

What type of securities make good donations? To begin, they must be publicly-traded (so HeartFit For Life can convert them into cash) and they must have appreciated in value. It makes no sense to give securities that have not appreciated. If a donor wishes to dispose of securities that have not appreciated, he or she should sell them, take the loss personally for income tax purposes (something the HeartFit For Life cannot do), and make a gift of cash.

If you’re planning on closing out an appreciated security position soon, consider giving a portion of that security as a donation prior to doing so; you’ll save on the capital-gains tax due. Most tax advisors recommend donating securities that have had the greatest percentage-gain since you’ve purchased them. Those are the ones that you will have to pay the most capital-gains tax when you eventually sell them.

But what if you’re not planning on selling any securities and furthermore you don’t want to part with any shares, maybe because you feel they have great future potential? You still can come out ahead with a security donation by doing the following:

  1. Determine the dollar amount of donation that you were planning to make.
  2. Next, purchase new shares for this dollar amount and add them to your portfolio.
  3. Finally, donate the same number in shares of this security, picking the specific shares with the lowest tax basis for your donation.

The end result is that you made the same donation as if you used cash and still own the same number of shares of this security. But the tax basis of the shares you now own is higher, which means your taxes will be less when eventually sold (of course, the newly purchased security must be held for a year to qualify for long-term capital-gains rates).

Since the savings result from a reduction in your personal income taxes, a very complicated subject, we recommend that you discuss your proposed stock gift with your tax advisor.

Doing a DTC Security Transfer

The actual donation itself of publicly-traded security can be accomplished very conveniently, easily, and quickly using your stock broker’s internal “DTC” electronic transfer system, providing the security is held in street name by your brokerage house. It’s free and very easy for everyone since no paperwork nor certificates are involved. Just determine the security name and the number of shares that you wish to gift to us. Then, call your broker and instruct him or her to transfer them as a gift, via DTC wire, into HeartFit For Life’s brokerage account. (Call HeartFit For Life’s office at (650) 494-1300 for our DTC transfer information.)

It is very important that you or your broker notify us on the day this transfer will be taking place, either by phone to HeartFit For Life’s office at (650) 494-1300 or by sending an e-mail to carl@thomsenhome.com. Please advise us of the following:

  1. your name,
  2. the security name being transferred, and
  3. the number of shares that are being gifted.

Should other issues arise or you want to talk to someone knowledgeable about these security transfers, please contact our treasurer, Carl Thomsen at carl@thomsenhome.com.

Determining the Value of the Donated Security for Tax-Reporting Purposes

For your information, it is our understanding of current tax laws that contributions of publicly-traded securities are valued at the average of the high- and low-trading price on the date of the gift. The gift date is considered to be the date that the securities are received into HeartFit For Life’s account. If you’re interested in making a security donation near year-end, please give your broker sufficient time on his end to accomplish this transfer before the end of the year, should that be your wish.

We’ll send you a receipt listing the security name, the number of shares contributed to us, the gift date, and valuation (see above). Per current tax regulations, the receipt will also state whether anything of value was given in return. We will cooperate with your tax advisor to see that your receipt is properly worded per current IRS and California tax regulations.

In Conclusion

Please note the following:

  1. Security donations do not have to be huge.
  2. We are set up to accept security donations and regularly receive them.
  3. There is no cost for a DTC security transfer (brokerage houses encourage them), nor typically is there any paperwork involved.
  4. Congress set up this particular tax shelter to encourage charitable contributions; we would be remiss if we did not bring it to your attention.
  5. It makes no difference to us whether a donation is made via a check or security; we want you to do what is easiest and most advantageous for you.

On behalf of HeartFit For Life at the Cardiac Therapy Foundation, thank you for considering a donation of an appreciated security in a publicly-traded company.