What You Need to Know
- Rough times can be an opportunity for advisors to bring charitable giving into their conversations with clients.
- Giving can bring potential tax benefits and give investors a chance to support causes they care about.
- This process can also deepen advisors' relationships with their clients.
Recent events have frayed the nerves of many investors, but it’s in times like these that advisors can truly shine. Challenging markets bring an opportunity for advisors to differentiate their service model with deeper conversations with clients about hopes, fears and purpose.
When advisors bring charitable giving into the conversation, they are not only delivering potential tax benefits, but giving investors an opportunity to support causes they care about at a time when many nonprofits are experiencing urgent needs.
Fidelity Charitable has identified five charitable giving strategies for advisors to consider when serving clients in this challenging market.
1. Select the Right Asset To Give
How it works: Consider a donation of long-term appreciated stock (i.e., held for greater than one year) to charity via a donor-advised fund in lieu of cash.
May work well for: Investors with long-term appreciated stock where the current value is significantly higher than when it was purchased.
Potential benefits: Tax benefits may include a tax deduction for the fair market value of the contribution and elimination of the capital gains tax and Medicare surtax that is otherwise incurred on the sale of the stock. This assumes all realized gains are subject to the maximum federal long-term capital gain tax rate of 20% and the potential of Medicare surtax of 3.8%. This does not account for state or local taxes, if any.
2. When Rebalancing a Portfolio, Consider Donating Appreciated Positions
How it works: Rather than selling appreciated positions to rebalance a portfolio, an investor can make a charitable gift of the long-term appreciated asset via a donor-advised fund.
May work well for: Client portfolios that have become increasingly exposed to stock market corrections or fallen out of alignment with investment goals.
Potential benefits: Investors may be eligible to take a tax deduction for the fair market value of the asset and eliminate the capital gain tax and Medicare surtax.
3. Divest Privately Held Interests via a Donor-Advised Fund
How it works: Donate a portion or all non-publicly traded held interests to a charity prior to divestiture. Note that timing is important as the donation must occur before the sale of the asset and that the donor needs a third-party independent valuation.
May work well for: Portfolios that hold a family business, S corporation shares, or limited partnership interests. Other assets that may be non-publicly traded include cryptocurrency, restricted stock, and some alternative investments.