Gifts of Appreciated Assets (Stocks or Mutual Funds)
The gift of an asset (often common stock, mutual fund shares, land, antiques, or homes) is a valuable way to make a contribution to a charitable organization and receive tax benefits based on the value of the asset(s).
Gifts of Appreciated Assets Example
Suppose Richard and Terri had 300 shares of XYZ Corporation that they purchased at $15 a share some years ago. The current value in today’s market is $36 a share.
If they sold the stock in the market, they would have a taxable, long-term capital gain on the difference between their cost and what they would receive from the sale ($36 minus $15 = $21 capital gain per share. 300 shares X $21.00 = $6,300 in capital gains).
Richard and Terri could sell the stock, pay the tax on the capital gain, and either keep or donate the proceeds.
If, however, instead of selling the stock, they gave the 300 shares to charity, they would not incur any capital gains and would be able to deduct the current value (300 shares X $36 = $10,800) on their tax return as a charitable gift.
By donating the stock, the ministry receives a larger gift than it would receive if Richard and Terri first sold the stock and then donated the proceeds after deducting the capital gain taxes. Also, Richard and Terri receive a greater tax deduction by giving the stock directly to the charity and avoiding the capital gain tax.
Gifts of Retirement Assets
Contributions to retirement plans can provide an excellent opportunity for growth as they grow tax-free, meaning that the growth or earnings are not taxed annually, but can continue to grow. The earnings are taxed when they are withdrawn, but this has allowed more dollars to be invested for more growth. Additional savings can occur if the recipient is in a lower tax bracket when the funds are withdrawn (for example, during retirement) than when the investments were growing.
Gifts of Retirement Assets Example
Norman and Ruth Smith had often put some of their savings into the stock market. They were also employed by companies that had 401k plans. They kept investing and the value of their plans kept growing. The Smiths had long been active in charitable giving – one of their first charitable gifts had been a gift of appreciated stock.
Norman: “Our first experience was giving several hundred shares of a stock that had more than doubled in value. We needed some help that year with our tax situation and that gift was a great idea. Also, our tax-sheltered retirement plans kept growing and just recently we rolled them into our IRA. It’s grown beyond our wildest dreams.”
Ruth: “But taxes will eat up so much of it. Not that we need it all, but we were hoping to get more value out of it.”
Norman: “We recently sat down with our attorney to look at our overall financial plans to make sure we had set up our affairs to best suit our needs. Our attorney suggested we consider making a charity a partial contingent beneficiary knowing how much we would like to help provide for those in need.”
Ruth: “Tax benefits for our estate, protecting our future, and knowing we’re making a difference in other peoples’ lives – it feels good!”
Make a Plan
Careful planning concerning the withdrawals from retirement funds needs to be done before you begin the process of a retirement asset gift. Not only is there a potential income tax burden, but if there is a balance in your retirement account at your death, there may be estate taxes as well. Estimates are that taxes could eat up as much as 70-75% of retirement assets under certain circumstances.
Using qualified retirement plan funds is an excellent source of assets to fund bequests. By designating Gospel Rescue Mission as a beneficiary (it can be a contingent beneficiary after the death of a spouse) funds pass to Gospel Rescue Mission free of taxes. It is possible to set up the beneficiary as the recipient of the entire remaining funds in the account or establish a percentage to fund the bequest.
Please note – the designation of any charity as a beneficiary of retirement fund assets cannot be simply written in your will or trust. The charity must be designated as a beneficiary of the retirement plan.
There are other strategies in using retirement fund assets to fund charitable gifts. For example, your qualified retirement fund assets may be placed in a charitable remainder trust by using a testamentary trust to provide for children or a spouse. There may be estate tax savings as a result. Other avenues are also available. Everyone’s personal circumstances are different, so please consult your tax advisor concerning the use of qualified retirement funds.
Gifts of Real Estate
Depending on the circumstances that are involved, gifts of real estate can be an effective means of planning a gift. Much of the individual wealth in America is invested in real estate. While the first thought often is a home or farm, real estate also can involve a vacation or second home, an apartment or commercial building, a shopping center, or undeveloped land.
Gift of Real Estate Example
Eileen and her husband, Paul, enjoyed their house. They had raised their three children there and had many family memories. But after Paul passed away, Eileen began to find that the old house was a burden. Without Paul to take care of things and with their children involved in their own families miles away, it seemed that the house was too big, too old and even a bit lonely.
Eileen: Paul always said that I was the solid one. If there was a decision to be made I could get to the bottom line pretty quickly. Well, the bottom line was that I needed to make a change for a number of reasons. I decided to move into a smaller place in town, easier to take care of and one that was part of a neighborhood where I could make some new friends and be a part of activities and things. And where my grandchildren could still come and visit.
Paul and I had talked about what to do when we got to this stage in our lives. I just thought Paul would be here with me, but that wasn’t to be. We had planned and knew I would have enough money to live comfortably. Initially we thought I’d need the money from the sale of the house, but I really don’t. My advisor went over the numbers with me. If we sold it, there would be a large capital gain and taxes to pay. But by putting the house in a trust that then sells it, I avoided a taxable capital gain because when I’m gone the trust goes to charity. The trust takes the money from the sale of the house and invests it, and I get the income from the trust for life. Then, an organization that is doing great things will receive the remainder of the trust and that will even save some estate taxes.
Often our real estate holdings, be it our house, a second home or investment property, is a significant part of our net worth. Gifts of real estate, therefore, can enable us to make significant contributions.
Each piece of property and its unique circumstances need to be reviewed to determine the suitability of the property as a gift. Generally speaking, a rule of thumb is that an acceptable piece of property is one that can be readily sold.
Also, there are many ways to donate property. It can be:
In addition to making a significant contribution, there can be other benefits for you:
Gifts of Life Insurance
Gifts of Life Insurance Examples
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The example shown here is an educational illustration and does not represent legal or tax advice. The value and cost numbers have purposely been selected as round numbers to allow for personal interpretation. The value used is not a minimum, maximum or suggested amount. Please consult your legal and tax advisors about your specific situation.