Published March 2001

Charities, investors benefit from appreciated-stock gifts

By Eric Cumley
Columnist

Most of us experience great emotional rewards from giving. But when you make a gift of an appreciated stock, you’ll also get some pretty good financial rewards as well.

You may be especially interested in gifting appreciated stocks if you invested steadily over the long bull market. While your stock gains have boosted your total net worth, they’ve also increased your potential tax burden. When you sell appreciated stocks, you will be liable for capital-gains taxes.

That’s why you may want to consider donating, or gifting, appreciated stock to a charity. You’ll receive an immediate income-tax deduction worth the full fair-market value of the donated shares. And, at the same time, you won’t have to pay capital-gains taxes when the stock is sold.

Of course, you also could donate stocks that have declined in value. But you’ll be better off selling those stocks first and then donating the proceeds to charity. By selling your “losers,” you’ll be able to claim a capital loss, which you can apply against capital gains on your tax return.

Instead of making an outright gift to a charity, you may want to explore the idea of putting your stocks in a charitable remainder trust.

A charitable remainder trust gives you another advantage. The trust can sell your appreciated stock, purchase an income-producing investment and pay you an income stream for life. Upon your death, the trust will pay out the remaining funds to the charity or charities you’ve chosen.

What about family? If you set up a charitable remainder trust, won’t you be depriving your family of those assets when you pass on? In a word, yes. But that doesn’t mean they have to wind up empty-handed. By removing appreciated assets from your taxable estate, you can reduce the estate taxes your heirs will face. You can use some of the income you receive from your trust to pay the premiums on a life insurance policy for yourself, with your heirs as beneficiaries. To keep this policy out of your estate, you may want to put it in another type of trust — an irrevocable life insurance trust.

Trusts can be quite complex instruments, so consult with your tax and legal advisers. But when you make a gift to a charity, you only need to consult your heart. And when this gift takes the form of appreciated stock, both you and your charity are winners.

Eric Cumley is an Investment Representative with Edward Jones Investments at 9930 Evergreen Way in Everett. He can be reached at 425-355-2008. Edward Jones is an NYSE-member investment firm with more than 7,000 locations nationwide.

Back to the top/March 2001 Main Menu