More On Tax Planningfrom The Advisor's Professional Library
- IRAs: Eligibility The eligibility rules for contributing to traditional and Roth IRAs are complicated. Learn how to effectively use them in retirement plans.
- Long Term Care Insurance: Premiums While premiums for qualified long-term-care insurance may be deductible as medical expenses there are exceptions to this general rule. Learn how to avoid unnecessary tax liabilities.
Karla Valas has seen some interesting assets that donors have considered giving to charity in her 15 years with Fidelity Charitable, among them:
- A thoroughbred racehorse
- A seat on the New York stock exchange
- A grain elevator
- An interest in a major league baseball team
- A beach house in Virginia
“Wine, of course, is very popular,” explains Valas (left), the managing director of complex assets for the Boston-based firm, noting that a donor once developed an allergy and could no longer partake of the fruity elixir and thus willed his entire collection. “It could be a pile of dirt. As long as something has value between a buyer and seller, and is a ‘low friction’ transaction, we’ll take a look at it.”
What she takes is mainly appreciated stock and other corporate assets, usually either from business owners of key executives. And although the assets her clients donate are complex, she insists the process isn’t.
“We know what we’re looking for, so we pre-scrub everything prior to the donor’s liquidity event so it’s ready to go and as seamless as possible,” Valas notes. “Our due diligence process is board approved and it’s one that protects the donor and charity from risk.”
Part of the ability to protect interested parties in this manner is due to the fact they don’t provide tax advice, and instead rely on advisors to fill that role.
Until recently, complex assets were a largely untapped source of funding for philanthropic endeavors, Valas notes. But more donors and their advisors are becoming aware that they can donate these assets and of the tax advantages associated with doing so and contributions are becoming more common. The trend might also get an added boost from the American Taxpayer Relief Act, she adds, which makes donating these types of assets even more attractive.
“What advisors don’t have to do is the heavy lifting when it comes to due diligence and the actual process,” she continues. “If they don’t want to stumble through the sophisticated process required of some universities to donate, or if they want their donation to go to more than one charity, we can help them streamline what needs to be done. The charity in particular doesn’t have to worry about all this, they just receive a check.”
It acts as a “multiplier effect” for an advisors business, in that they only have to worry about knowing which of their clients have a philanthropic bent, and then introducing them to Fidelity. They can then market their charitable giving expertise.
“The tax benefit plus the philanthropic benefit makes it a win-win for all involved.”
Valas concludes by noting the effect the process has in increasing charitable giving.
“It’s completely scalable, and because it’s simple, when one company shareholder does it, we can repeat it with others. Word gets out about how easy it was and they then just have to say, “Yes.”