Written by: Aruna K. Pappu, LLM-Tax, JD, MSTax

To those of us in the Planned Giving (PG) Community, the multiple benefits resulting from the donation of appreciated assets to a charity is far from a novel concept. As a matter of fact, most of us would consider this strategy a classic “oldie but goodie.” EVERYONE knows this is a downright “no brainer”, right?

Well, as was made quite clear to me recently, apparently not. Let me explain: I was recently involved with two donor scenarios. Both donors had independently approached my institution seeking to donate multi-million-dollar long-term concentrated positions of appreciated stock. The important distinction, however, was the timing of these respective calls. Specifically, Donor #1 contacted us BEFORE the anticipated sale of his appreciated stock; while Donor #2 called us three weeks AFTER he had completed his stock sale. (You know where this is going…)

With respect to Donor #1, we were able to advise that the more beneficial approach for all concerned would be for him NOT to sell his appreciated stock, but rather to donate these assets directly to our organization. We explained to Donor #1 that by making such a “Gift-In-Kind” of his appreciated assets, the tax benefit he received would be two-fold: (1) during the year of donation he would get the full FMV income tax deduction (up to a maximum of 30% of his AGI);  AND  (2) he would avoid paying any capital gains tax on the built-in stock appreciation value (i.e., the FMV less his cost basis). We also made clear to Donor #1 that we, as the recipient charity, would not be subject to any income or capital gains tax on the amount he gifted to us. Thus, by making a charitable gift of the appreciated stock to our organization, Donor #1 would be able to make a very generous charitable donation while generating significant tax benefits for himself. As you can imagine, Donor #1 was thrilled with this news and our organization was able to secure a very substantial charitable gift. A classic “Win-Win” all around.

In contrast, since Donor #2 had already sold his appreciated stock by the time he contacted our office, we were unable to offer him the sort of timely and beneficial advice we offered to Donor #1 above. Sadly, we had to inform Donor #2 that he would be subject to income taxes on the sale of his $11 million in stock as well as capital gains taxes on the built-in appreciation value. He was unaware of these tax implications -- his contemplated Big Gift to our organization unintentionally turned into the “Big Gift That Got Away.” A Big Ouch for all concerned. We tactfully admonished him for not contacting us before he embarked on this stock sale.

So my friends, the moral of this story is simple:  We must impress on all donors and prospects how imperative it is to involve your planned giving team in the charitable giving discussions as early as possible. Timing, as they say, is EVERYTHING!