News for Professional Advisors
Discussing Charitable Planning in Down Markets
Market declines and inflation may make it seem psychologically more challenging for some of your clients to fulfill their traditional giving objectives. Realizing that it will “take more shares to do the same good,” your clients may be less inclined to give publicly traded stock to their donor advised funds and other charitable recipients.
Solution: During this time, your clients may want to consider gifts of non-cash, complex assets.
These gifts have enormous upside because your clients could avoid capital gains tax when donating an appreciated asset — held longer than a year — and also generally receive a fair market value deduction. If your clients are considering a complex gift, here are a few things to keep in mind:
Shares in a closely held business or a gift of real estate, for example, must be donated before there is a signed purchase and sale agreement if the donor wants to avoid the assignment of income.
ASSETS TO GIVE
Your clients could avoid capital gains tax by donating the following types of non-cash complex assets:
- Real estate
- LLC and limited partnership interests
- C-corp shares
- S-corp shares
- Stocks and bonds not publicly traded
- Life insurance policies
The IRS requires a valuation in order to determine the deductibility. Beware of potential pitfalls for closely held business interests including marketability and minority discounts.
Donors must obtain a qualified appraisal for the asset they are giving away, and that appraisal must be dated no earlier than 60 days before the gift and no later than the filing date of the tax return for the year of the gift. Your client will need to submit an IRS form 8283 with his or her tax return, which must be signed by the appraiser, the Community Foundation and your client.
By giving these complex assets to your client’s donor advised fund at the Sioux Falls Area Community Foundation, donors can then make grants to their favorite nonprofits that are often generally unable to accept complex gifts.
Want to learn more? Every situation is unique, and we’re here to help.