Gifts of Publicly Traded Stock

Gifts of publicly traded corporate stock are very tax-efficient gifts and among the easiest to make. As a result, they constitute the most common type of property gifts to charity. Donors generally receive charitable income and transfer tax deductions for the fair market value of the stock contributed. Unrealized appreciation in the stock is not taxed. The donor, therefore, is receiving a double benefit by making a gift of appreciated stock; full fair market deduction and non-recognition of gain. The income tax deduction in any one year will normally be limited to thirty-percent of the donor's adjusted gross income with a five-year carryover for gifts to a public charity and twenty-percent of AGI for gifts to private foundations. Unlike gifts of closely held stock, gifts of publicly traded stock to private foundations are not as likely to conflict with the self-dealing and excess business holdings limitations applicable to private foundations or the excess benefit transaction requirements if the donor or a related party is a "disqualified person" with respect to the donee organization.

Gifts of publicly traded securities are effective with the unconditional delivery of the stock to the charitable donee. When this actually occurs depends on how the stock is held by the donor and the method she uses to transfer the stock to the charitable donee. The process can take several days or more if the donor delivers shares to his broker for transfer to the charity of if the shares are held in a "street name." This time delay can affect both the value of the gifted stock, the amount of the charitable deduction, and the tax year in which the deduction is allowable.

The value of publicly traded securities is generally the average between the highest and lowest quoted selling price on the exchange where the securities are principally traded on the valuation date. If there were no trades of the stock on the valuation date, the value is generally the average between the bid and asked prices on that date. The value of mutual funds is generally the public redemption price of the shares on the valuation date. Special rules may apply to shares of closed-end investment funds and restricted stock.

While gifts of appreciated stock are very beneficial, some planning is required to ensure the donor receives the intended benefits of the gift.

©2008 Ronnie C. McClure, PhD, CPA