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Charitable giving strategies for highly appreciated assets

Mark Muntean
Mark Muntean, CAPTRUST

By Mark Muntean, AIF®, CFA®, CFP®
Financial Advisor, CAPTRUST

Our resolve as investors and wealth advisors was put to the test in dramatic fashion as we witnessed markets plummet nearly 35% within a matter of weeks before bottoming in March of last year. Fast forward 18 months and where are we? Global stocks are now making new highs. In fact, as of the time of this writing, U.S. stocks are now more than 30% higher than the pre-pandemic peak. Incredibly, investors that took the long-term view, were guided by a sound financial plan, and rebalanced prudently are financially stronger today.

It's important to acknowledge that the recovery of the economy and markets has been fueled by unprecedented amounts of government spending programs and central bank stimulus. There is always risk of a policy error, especially given the massive amount of dollars involved. And now that the economy is roaring back, policymakers are looking to pass the baton from the public to the private sector. It's too early to know whether this hand-off will be seamless.

But as the rise in stock market valuations indicates, there remains a lot to be optimistic about. Consumers are eager to get out and spend, and they have the excess savings to do so. Corporate earnings are booming. This should help propel and sustain the next phase of recovery. It's the perfect time to re-evaluate your investment portfolio to ensure it is well-balanced and aligned with your long-term goals.

Even through the recent challenges, successful families have a lot to be thankful for. But there are too many that are still hurting as they adapt to rapidly changing societal and economic norms. Many in our communities now struggle with higher rates of depression, drug addiction, and joblessness. I believe that charitably inclined families that find themselves financially stronger today than a year ago want to give back to their local community in meaningful ways.

For my 2021 client reviews, rather than discussing a conventional portfolio rebalancing strategy of selling stocks and buying bonds, I have it on meeting agendas to review the strategy of transferring out-of-balance and highly appreciated investment holdings that are located within taxable (non-IRA) accounts to a donor-advised fund.

The benefit of this strategy is that you get a tax deduction for the full fair market value of the transferred assets at the time of the gift. And, with a donor-advised fund, you can recommend grants to your favorite charities over several years, or even in perpetuity. Plus, the dollars can be reinvested prudently for long-term growth in a tax-exempt charitable account, enabling the contribution to be leveraged into a significant and lasting impact. This strategy has the dual advantage of allowing some of the recent stock market gains to be taken off the table for the benefit of charities while mitigating and shielding taxes.

To illustrate, suppose you have unrealized gains on stock or mutual fund holdings in a trust, transfer on death (TOD), individual, or joint investment account. You can gift appreciated shares or units directly to a donor-advised fund. Assuming $50,000 of unrealized gains out of a $100,000 donor-advised fund contribution, and a 29% total capital gains tax rate (federal, state, investment income tax), approximately $14,500 could be saved versus an ordinary rebalance. (Note to advisors: It's a great practice to quantify the value of recommendations for clients whenever possible and share this information with them!)

Additionally, taxpayers that typically claim the standard deduction may want to consider funding a donor-advised fund with several years' worth of planned charitable gifts into a single tax year. This "bunching" strategy can enable taxpayers to increase their itemized deductions above the standard deduction amount, thus enabling them to shield taxes in addition to helping their favorite charities.

While all of us look forward to when we will have this challenging period finally behind us, the team at Akron Community Foundation stands ready to help you support the charities you care about. Together, we can make a strategic plan that aligns with a variety of charitable giving goals, including establishing donor-advised funds. Reach out to start the conversation!

To learn more, contact Laura Lederer, vice president and chief development officer.

Additional Resources

This content is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 

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