News and analysis
August 29, 2014

Donors Often Overlook Benefits of Giving Appreciated Stock

With the stock market at historic highs, fundraisers who aren’t talking to their donors about making a new gift or fulfilling a pledge with appreciated stock are missing out, experts say.

Many wealthy people don’t understand the advantages of giving appreciated stock versus cash. They can take an immediate tax deduction for the full market value of the stock and also avoid the capital-gains tax they would owe by cashing in the securities. Then, using the cash they might have otherwise donated, they can repurchase the same stock at a higher cost basis for capital-gains purposes.

Donor-advised funds, which allow people to set up charitable accounts and help decide which nonprofit groups get grants from those accounts, are seeing a rise in donated stocks this year. At the National Philanthropic Trust, for example, "we have seen an uptick in gifts of appreciated securities," says president Eileen Heisman. "The market goes up and a day or two later, people want to capture the higher value of their gift."

At the Fidelity Charitable Gift Fund, gifts of appreciated stock, both publicly and privately held, accounted for 57 percent of donated assets in the first half of this year, up from 43 percent during the same period in 2013. And for the first time since the Great Recession, donated securities at Fidelity accounted for a higher percentage of contributions than in the first half of 2008, right before the economic crisis, when they stood at 54 percent of gifts.

At the Jewish Federation and Endowment Fund, in San Francisco, stock gifts for the fiscal year ending June 30 are up by more than 12 percent over the previous year.

The surge in stock gifts, officials said, reflects the rise of publicly traded stock as well as a big jump in mergers and acquisitions, which mostly involve privately held companies. In the United States, the value of mergers and acquisitions during the first half of this year rose to $694.6-billion, an increase of 98 percent over last year, according to the Mergermarket Group, a global company that conducts research and analysis for investment banking, legal, and other corporations.

At Fidelity, gifts of complex assets including privately held stock exceeded $100-million in the first six months of 2014, more than double the value of such gifts in the same months last year.

It’s not just stock donations that are going up, says Jill Dodd, a San Francisco lawyer who works with charities and wealthy clients to structure big complex gifts. Ms. Dodd says that she and her colleagues have observed a rising number of charitable remainder trusts being created with proceeds from the sale of real estate. Such trusts provide income for donors, usually for the life of that person and in some cases a spouse or another individual, before generating a sizable gift to charity.

"Real estate here [in the Bay Area] is through the roof. I just hope it’s not another bubble," Ms. Dodd says, referring to the overheated housing market that ushered in the 2008 recession. "People feel wealthier," she says, "and the recession is becoming a distant memory."

"We are finally returning to normal," says Robert Sharpe, a Memphis fundraising consultant who has examined Internal Revenue Service reports on itemized donations for several years leading up to 2012, the most recent year for which data are available. Itemized donations account for an estimated 81 percent of all individual giving, on average, research has found.

By 2012, Mr. Sharpe notes, "individual giving was not quite back" to pre-recession levels, but it was very close. Itemized deductions for both cash and noncash gifts that year totaled $199.3-billion, more than the previous high of $193.6-billion in 2007. Adjusting for inflation, however, itemized deductions would have needed to increase by another $14-million, or 7 percent, to reach 2007 levels.

Given the stock market’s growth since 2012 and a resulting rise in household wealth, says Mr. Sharpe, charitable giving probably reached or surpassed pre-recession levels in 2013—or it will this year. Experts had predicted that charitable giving by individuals would not reach pre-recession levels until 2022.

Charities, says Mr. Sharpe, should be routinely asking wealthy donors who give cash or checks if they have considered donating appreciated stock. He says he once worked with a billionaire who had liquidated appreciated stock to give several million dollars to build a new medical facility. The donor, Mr. Sharpe recalls, was chagrined to learn that he would have been better off if he’d simply donated the securities.

Mr. Sharpe says that another one of his clients, a fundraiser who works for a conservative think tank, got a $5,000 check from a donor about a year ago. The fundraiser called the man and asked him if he was aware of the benefits associated with a gift of appreciated stock. The donor, Mr. Sharpe says, ended up replacing his $5,000 check with $10,000 worth of donated stock and profusely thanking the fundraiser for alerting him to the financial advantages of giving appreciated stock.

Worrisome Trends

A recent study by the Indiana University Lilly Family School of Philanthropy has found that donors’ giving attitudes and habits have not been permanently altered by the 2008 recession, as they were following the Great Depression of the 1930s.

"We did find a negative impact, but not past the end of the Great Recession," which officially ended in June 2009, says Patrick Rooney, who oversaw the research as associate dean at the Lilly School. "People may be more frugal and think about things differently than in prior years, but at least with philanthropy, the effects did not persist."

Even with giving on the rise, some fundraising experts see worrisome trends in the years ahead, particularly for organizations that depend on middle-class donors, many of whom have seen their incomes stagnate or decline and their children’s prospects diminished. A recent survey found that baby boomers are the first generation in decades to think their children will be unable to attain the same degree of financial stability they enjoyed.

"We now have a whole generation that has the same or less buying power than they did 20 years ago," says Kent Dove, a now-retired development professional who authored five textbooks on fundraising. "As long as there is this malaise in society, it will have a negative effect on philanthropy. Unless and until we can be optimistic about the future and secure, philanthropy is at the ragged edge."

Send an e-mail to Holly Hall.