Gifts of cash or stock: Is it a toss up?

Summer 2023

As your philanthropic clients can likely attest, the going has been rough for many of the nonprofit organizations they support. Turbulent economic conditions, concerns about inflation and challenges in the banking sector are just a few of the factors that are causing donors to be more financially conservative and perhaps begin to evaluate whether to keep their charitable giving at the levels of years past.

At the same time, many of your clients deeply understand the need to support the nonprofit sector and continue giving to the charities they love. Philanthropic support to these organizations is critical to maintaining and improving the quality of life in our region. This is especially true as the number of households giving to charity has declined by more than 16% over the last three years.

As we head into the summer months, it may be a good idea to touch base with your clients about their charitable giving budgets for 2023, and in particular, to evaluate the types of assets that are best suited for each particular client to give to charity. In some cases, it will be best for your clients to give cash. In other cases, stock will be more appropriate.

For example, as interest rates and inflation continue to increase clients’ concerns about their household finances, you and your clients may decide that preserving cash is a priority.

This means that some of your clients who have typically given cash to their favorite charities or to their Donor Advised Funds (DAFs) at the community foundation may be reluctant to do so this year. There’s a silver lining here because giving appreciated, publicly traded stock to a DAF or a charitable organization is a highly effective tax strategy in any economy. This is true because capital gains tax is avoided when your client transfers long-term, marketable securities to a fund at the community foundation or other public charity. The client is typically eligible for an income tax deduction at the fair market value of the securities, and when the charity sells the securities, the charity does not pay capital gains tax. This is a win-win for your client and the charity. And even in a give-and-take stock market, not all securities are down. Many of your clients are no doubt holding long-term stock positions that have appreciated substantially since they bought them.

For some clients whose portfolios are down significantly, this may be a year to consider contributing cash to a Donor Advised Fund or Scholarship Fund instead of donating highly appreciated stock, as gifting cash can give clients’ positions more time to recover (and thus be available for future contributions).

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