Gifts of stock
Gifts of appreciated stock
The stock market is like a roller coaster with its ups and downs. However, even when the market is generally down, if you have held stocks for several years, the value of some of your investments may still exceed your purchase cost. You can use this stock for gifts to the Church through your parish, the Archdiocese of Detroit Endowment Foundation, Sacred Heart Major Seminary or other archdiocesan institution.
The tax impact of the technique you use to give appreciated stock to the Church will vary greatly. If you sell stock and give the proceeds to the Church, you will pay federal and state income tax on your gain from the sale. Of course, you will be entitled to a charitable contribution deduction for the money you give to the Church.
However, if you give stock to the Church you avoid the income tax incurred on a sale. Moreover, you will be entitled to a contribution deduction for the fair market value of the stock on the day the Church receives it.
It is an obviously better tax strategy to give the stock to the Church than to sell it and donate the proceeds. You can make a larger gift by donating the stock since you do not have to pay tax on a sale. You should note that cash gifts are deductible up to 50 percent of your adjusted gross income. Gifts of stock or other property are deductible up to 30 percent of adjusted gross income. If your gift exceeds these limits in the year you make the gift, the excess can be carried over for five years, subject to the same limitations.
Stock valued at less than cost
If you plan a gift to the Church using stock that has declined in value below your original purchase cost, the better tax strategy is to sell the stock. You are then able to claim the loss on your tax return or perhaps offset your gains on other sales. You will be entitled to a contribution deduction for your gift of the sale proceeds to the Church.
Charitable gift annuity
You can use appreciated stock to arrange a gift annuity with the Archdiocese of Detroit Endowment Foundation. With a gift annuity arrangement you avoid part of the capital gain tax entirely and defer the balance over your life expectancy. An additional gift annuity benefit is your cash flow from the annuity most likely will be significantly greater than the dividend on the stock you give to the foundation.
Charitable remainder trust
You can establish a charitable remainder trust (CRT) with appreciated stock. No capital gain is recognized at the time you transfer the stock to the CRT. In general terms, the tax rules for CRTs require the trustee to distribute annually to you or other individual beneficiaries at least 5 percent of the value of trust property. (There are variations of these rules not important to our discussion here.) In order to meet this payout requirement, the trustee may have to sell the stock and invest the proceeds in securities paying a higher return. The CRT is tax exempt and does not pay tax on the sale of stock. The beneficiaries may recognize capital gain on some of the their annual distribution, depending on the other types of income the trust generates, such as dividends and interest. It is possible, therefore, that the trust beneficiaries may avoid recognizing capital gain on some or all of the appreciation on the stock transferred to the CRT.
The material presented on these pages is for your general information on stewardship, estate planning and charitable giving, and is not intended as legal advice. You should consult your attorney and tax and financial advisors for specific transactions of the points illustrated here.
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