2018 Tax Review

View Sand Hill's current assessment of the sweeping U.S. tax code overhaul signed into law in late 2017.

Expand Your Legacy: Gifting Complex Assets

Expand Your Legacy: Gifting Complex Assets

Real estate, farmland, artwork, closely-held stock of C or S corporations….these are all highly valuable assets, especially here in the Land of Founder’s Stock. If you’re philanthropically minded, it might make sense to consider incorporating these valuable, less liquid assets in your strategic gift and tax planning. With the memory of tax season still fresh, many families start addressing their tax and gift planning for the current year now.  In addition to earning a deduction based on the current value of the gift, a donor who contributes highly appreciated assets to a charitable organization transfers the capital gain to that tax-exempt organization and thereby escapes paying tax on capital gains resulting from an outright sale of the asset, whether stock or real estate.  The contribution of more complicated, restricted, even pre-public securities or appreciated real estate can be an effective approach to charitable giving, though it can require some special costs and planning for the donor.
Many small, community-based charities do not have the capacity to deal with complex gifts. They may even suggest that a donor sell the asset outright and donate the after-tax proceeds, which is clearly not an optimal strategy.  Many larger foundations have the capacity to manage more complicated gifts and their offerings are worth exploring. Since gifts of the type discussed here tend to be larger than those of more easily saleable assets since they require more time and cost for the donor and the charity, finding an organization that offers donor advised funds (DAF’s) makes sense.  Once this larger gift is sold, the donor, now an adviser to the fund created by the gift, is able to direct portions of the cash proceeds to a variety of smaller charities.    Larger foundations, particularly ones with significant assets in DAFs, have the experience and legal resources to handle the receipt and sale of less liquid assets, whether restricted public or pre-IPO stock, homes, or wineries.
To make sure all the i’s are dotted and the t’s are crossed, the first step is for the DAF team to confirm that they can indeed accept the gift. The team also provides details on the process and related costs associated with the gift, including appraisal (to determine the deductible value of the asset gifted), any legal clearances, and carrying costs related to the gift and its sale. A gift to a donor advised fund is an irrevocable charitable gift, and tax deductible by the donor.
The tax-exempt foundation hosting the DAF sells the asset, receiving cash from the buyer. As a tax-exempt organization, it pays no tax on the capital gains.  Sale proceeds are deposited to the fund established by the donor; once the funds are received, the donor may begin recommending grants to any number of other qualified charities.
If you regularly give to charities and you have complex assets, including such gifts in your plan and reducing your anticipated capital gains taxes in the process is a wonderful opportunity to expand your giving capacity and your legacy. Your CPA and your Sand Hill wealth manager can work with you to devise a detailed plan outlining immediate and long-term charitable goals, and then determine the best method for donating assets to realize these goals. We can help you explore the key considerations that will help you give more efficiently.

This information has been developed internally and/or obtained from sources that Sand Hill Global Advisors, LLC (“SHGA”), believes to be reliable; however, SHGA does not guarantee the accuracy, adequacy or completeness of such information nor do we guarantee the appropriateness of any investment approach or security referred to for any particular investor. This material is provided for informational purposes only and is not advice or a recommendation for the purchase or sale of any security. This information reflects subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. This material reflects the opinion of SHGA on the date made and is subject to change at any time without notice. SHGA has no obligation to update this material. We do not suggest that any strategy described herein is applicable to every client of or portfolio managed by SHGA. In preparing this material, SHGA has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you should consider, with or without the assistance of a professional advisor, whether the information provided in this material is appropriate in light of your particular investment needs, objectives and financial circumstances. Transactions in securities give rise to substantial risk and are not suitable for all investors. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.

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