Endless Opportunity | Searching High and Low For Gifts (Especially Low)

Endless Opportunity | Searching High and Low For Gifts (Especially Low)

Article posted in Practice, Publicly Traded Securities on 13 July 2017| comments
audience: National Publication, Two Hawks Consulting, LLC | last updated: 14 July 2017


This article on "opportunity recognition" focuses on low basis assets.

The collision of technology and knowledgeable insight in the mid-1980s was a huge factor in opening the planned giving field – creating the first software, Philanthro-Tec, that illustrated the true benefits of charitable remainder trusts and placed it in the hands of hundreds of financial advisors. Up to that point, planned giving had been conducted by the universities, hospitals and museums that were the beneficiaries of the gifts – now it was available to the “everyman” and that democratization changed the game forever.

With hundreds, perhaps thousands of advisors now able to talk to more potential donors about more potential gifts, giving got turned upside down. The main tool available to us back then, was the Charitable Reminder Trust (CRUT, CRAT, SCRUT, NiCRUT, NiMCRUT) – becoming part of our language and with them the hunt for the perfect asset to fund such trusts became the focus of our new knowledge. Of course, with a soaring stock market, high capital gains tax rates, and high Federal interest rates, the perfect gift was low basis stock – or any other low basis asset for that matter.

Low basis assets are still the most sought after assets for giving. Publicly traded stock can be gifted directly to charity with no recognition of gain to the donor and a charitable income tax deduction based on the current fair market value of the asset. A win for the donor and a win for the charity. More creative planning may interpose a Pooled Income Fund, one of the Charitable Remainder Trusts, or a Charitable Gift Annuity. Each of these charitable gifts provides the benefit of a partial charitable income tax deduction, but with the retention of an income interest by the donor.

The low basis asset is the Holy Grail for the advisor. It needn’t be publicly traded stock – It might be a closely held business interest, real estate or even the family home. Avoiding or deferring capital gains tax on appreciated assets while getting a charitable income tax deduction (and perhaps retaining an income) will make many clients very happy. Yet, statistically, the wealthy donors still write checks to charity. Why is that? My belief is that we haven’t done a good job of letting them know that there’s a better way.

If your donor absolutely loves their XYZ stock that they paid $1.00 for, that’s now worth $25.00, and they refuse to sell it because it’s such a great company, have them give it away as their next big charitable gift and buy it back for themselves the next day at a new, higher basis. Depending on the state you live in, you may have save them a 40% capital gains tax in addition to an income tax deduction – they now have a new basis in their favorite company.

For advisors, find low basis assets in your clients’ holdings – apply any one of the many charitable strategies that are available and you can magnify the value of your advice infinitely.

Give me a call at (704) 698-4055 or email me at randy.fox@ezcharitable.com for more information.

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