If you own stocks, mutual funds or exchange traded funds outside of a retirement account, you and your favorite charities can benefit if you give shares directly to the charity. This month we talk to financial planner Michael Gorman about the benefits of donating appreciated stock and the simple steps such a donation requires.
 
Q: What are the tax advantages of donating appreciated stock?
 
A: If you were to sell stock you own and then donate the proceeds to charity, you would pay tax on the stock’s capital gains. If you’ve held the stock for more than a year, when you give shares directly to charity, you can deduct the full market value of the stock or fund. (If it’s been less than a year, your deduction is limited to the cost basis.)
 
The charity then sells the security and is not subject to capital gains tax, because it is a qualified charitable entity. Consequently, the charity gets the full value of the stock donation.
 
Q: Why is this a particularly good time to donate stocks, mutual funds or exchange traded funds?
 
The stock market has performed exceptionally well this year. For example, three main U.S. stock indexes closed at record highs at the end of October. As a result, many investors own stocks that have increased in value, making this a good time to transfer these stocks as a charitable donation.
 
Q: Can you give an example so folks can see why stock donations are a good alternative to donating cash?
 
A: Sure. Let’s say Jennifer would like to donate $2,000 to the Parks Foundation. If Jennifer has appreciated stock, she can make an in-kind donation of shares. Suppose she has held XYZ corporate stock for many years and the price per share is now $100, but Jennifer only paid $15 per share when she bought the stock. If she were to sell the shares to raise the money for the donation, she would incur a capital gains tax totaling approximately 24% depending on her tax bracket – about $400 in taxes. 
 
Instead, she could give 20 shares worth $2,000 to the Foundation. She gets to deduct $2,000 from her income tax (depending on her situation) without paying a $400 capital gains tax for selling the stock. The Foundation can sell the 20 shares and net the full $2,000 without paying tax since it is a tax-exempt, 501(c)(3) entity. Of course, you should always check with your own financial advisor or tax professional before making a charitable contribution to make sure stock donations are right for your situation.
 
Q: How do I make a donation of stock?
 
A: Your broker or financial planner can arrange to transfer whatever quantity of shares you wish “in-kind” (without selling them) directly to the Parks Foundation, or any other charity of your choice. (The Parks Foundation provides details about donating stocks here.)​
 
It is extremely important to notify the nonprofit when you donate shares. Charities receive gifts of stock with absolutely no identifying information. You must alert the nonprofit that your gift of stock will be transferred and provide your contact information so that the nonprofit can send you a letter acknowledging your gift.
 
Before donating, check with your tax professional to make sure you will benefit from the donation. Recent changes to tax laws may limit the amount that you can deduct as part of your itemized deductions on Schedule A of your tax return. 
 
Q: Is there anything else donors should know?
 
A: There may be a variety of additional reasons why someone would want to donate stock. For example, an investor might have too much of a particular stock (a “concentrated position”) and want to divest some of it. Or an individual might have invested in a company and no longer want the stock because its prospects are not good or the investor dislikes its impact on the environment. In these examples, the investor has other valid reasons for wanting to divest a stock, and donating the stock to charity can provide tax advantages, as well.
 
I’ve supported charities this way myself and found it a financially wise decision that is also personally gratifying.
 
Michael Gorman is a Certified Financial Planner® with Creekside Partners in Petaluma. He and his wife Pat have supported the Parks Foundation for nearly a decade and are now monthly Park Pals.

Kathryn Peyton, a monthly Park Pal donor and Certified Financial Planner® enjoys an outing with her dogs at Gualala Point Regional Park. ​

We had the opportunity to interview Kathryn Peyton, CFP®, a financial advisor at Abacus Wealth Partners in Sebastopol. A long-time supporter of the Parks Foundation, Kathryn has been a monthly Park Pal donor since 2020.

The end of the year is typically a time when people make charitable donations. We talked with Kathryn about some of the reasons people might want to donate to nonprofits like the Sonoma County Parks Foundation through an IRA, and other tax-advantaged ways to make charitable contributions.

What is an IRA Required Minimum Distribution (RMD), and who does it apply to?
An RMD is the amount of money the government tells you that you must take as a distribution from an IRA or other tax-deferred retirement account every year once you turn 72 years of age. For individuals who inherit an account, you must take a Required Minimum Distribution even if you’re younger than 72. In this discussion, we are focusing on IRA accounts, because IRAs have a special ability to use the RMD to make charitable contributions.

A charitable gift made through a direct transfer of funds from your IRA custodian to a qualified charity is called a Qualified Charitable Distribution, or QCD. These distributions generally come from Traditional IRAs and Inherited IRAs; they can also come from inactive SIMPLE and SEP IRAs. Under some limited conditions, it may be appropriate to make a QCD from a Roth IRA; see a tax or financial advisor for more information on that.

Why should people consider making a charitable gift via their RMD?
All RMDs from Traditional IRAs are considered taxable income to the IRA owner. It’s like you are getting a salary every year from your IRA, and you have to pay taxes on it. If you make a charitable contribution with your IRA RMD, though, you don’t have to count that money as income.

This arrangement delivers multiple advantages. First, you can give more money away to charities that you love, and that always feels good. It also reduces taxable income that you otherwise would have, which lowers your taxes and can protect you from missing out on some tax credits. In addition, by donating some or all of your RMD, you may protect yourself from having to pay extra for Medicare. If your RMD raises your taxable income over $85,000 for a single individual or $170,000 for married filing jointly, you’ll experience a Medicare high-income surcharge, which increases your Part B and Part D premiums.

What do you tell your clients about making a Qualified Charitable Distribution?
If you’re going to make a QCD, it is absolutely essential for the distribution to go directly from your IRA to the charity. If your IRA custodian sends the funds to you first, and then you write a check, that money will be counted as income and you will be taxed accordingly. Some of our clients who like to give widely use a special checkbook drawn on their IRA to make contributions themselves; you can also ask your custodian to send checks on your behalf.

It’s important to note that some charities are not eligible to receive QCDs, even if they are a 501(c)3. For instance, if you have a Donor Advised Fund, you may not make a QCD to that account. In addition, you are not allowed to benefit from a QCD, so, for example, you can’t use your IRA to contribute to a charity golf tournament if you are participating or to purchase a Regional Parks membership.
​
Another critical point is that for the charitable gift to count towards this year’s Required Minimum Distribution, the IRA must disburse the funds before your RMD deadline, which is typically December 31. If you are really lucky and have a very large RMD, only $100,000 of your RMD can be used to make QCDs.
​
Are there other tax advantages to making Qualified Charitable Distributions?
Under the tax act passed in 2017, the standard deduction is much higher than it was previously. This situation makes it less likely that taxpayers will itemize their charitable contributions, and more likely that they’ll just take the standard deduction. Making a Qualified Charitable Distribution from your IRA enables older taxpayers to see a tax benefit from their charitable contributions, even if they don’t itemize.
 
Are there other year-end giving strategies to consider?
Because the stock market has performed well in recent years, many people own highly appreciated stocks. Donating stocks to a charity enables an individual to support a cause that is meaningful to her or him without incurring capital gains. Be sure to notify the nonprofit of your impending gift of stock, as the stock transaction information will not include your name or contact information.
 
Finally, it is always a good idea to consult with your tax advisor regarding your charitable giving plans.

On the heels of "Make a Will" month in August, we interviewed Parks Foundation board member Chad Dorr about the importance of estate planning and some current trends. Chad Dorr is an estate planning attorney at Perry, Johnson, Anderson, Miller & Moskowitz in Santa Rosa. The views expressed in this article are his own.

Q: For people who don’t have many assets, do they really need an estate plan?
Absolutely.  Most people think of “estate planning” as identifying who gets what property when you die.  That is part of it, but a comprehensive estate plan is much more than that. It includes making plans for your financial affairs and healthcare decision-making if you become incapacitated. If you don’t lay your plans out, in writing, in advance, not only will your loved ones have to deal with grieving in what may be the hardest moments of their lives, they will be left rudderless in carrying out your wishes – which is a recipe for disputes – and could put important decisions in the hands of the courts.
​
Q: What’s better, a will or a trust?
That depends on the circumstances. A lot of folks think that a will is sufficient in terms of planning for their estates, but in California, if a person dies with as little as $166,250 (gross value) in their estates, their heirs will have to go through the time and expense of a court-supervised probate. With the estate tax threshold currently so high -- $11.7 million for individuals/$23.4 million for married couples – most people don’t need an estate plan for tax purposes. Estate plans are incredibly important, though, to ensure that the things you’ve worked so hard for during your life get to your loved ones efficiently.

A trust is a more detailed instrument that allows your property to be distributed without court supervision, which usually means the estate can be handled quicker and for less expense, meaning more of your estate will go to your heirs.

Here’s a good example: Donna has no savings, but owns a modest house worth $500,000 and nothing else. With a will (or if she dies without a will), probate will cost $13,000 for attorneys’ fees and at least $2,000 in court-related fees.  A trust will also have some expenses of administration, but they are usually a fraction of what a probate would cost. 

Don’t think that trusts are only for wealthy people. Trusts are for everyone. Basically, anyone who owns real property in Sonoma County would likely be subjected to probate when they die with a will. For most people, to create the easiest transition to your heirs or other beneficiaries, a trust (or some other non-probate transfer) is most helpful.

​Q: What are some current trends that you're seeing?
We are keeping an eye on a number of legislative proposals related to the estate tax. Given the amount of debt the U.S. has taken on because of COVID recovery, Congress may reduce the estate tax threshold or eliminate some other tax planning tools that benefit heirs, like the step-up in basis for determining capital gains on inherited property. 

Also, lately, it seems like more individuals are working on their estate plans. That might be because people have had more time during COVID to catch up on things they postponed, or it might be because people are more aware of their mortality during a pandemic.

Q: What advice do you give people about making legacy gifts to nonprofit organizations?
I talk to my clients about being able to provide for things that they care deeply about during their lives, even when their life situation may not enable them to be particularly generous. When someone passes away, she or he no longer needs to worry about paying rent or the particulars of daily living. And you don’t have to worry about potential future expenses, such as skyrocketing costs for healthcare. Because you no longer have uncertainty about what funds you’ll need in the future, that freedom from worry can open the door to greater generosity after you’ve died.

Leaving a bequest to a nonprofit is a great way to support things you were passionate about during your life and pass that legacy on to future generations.

Is a gift through a will or trust the only way to leave a bequest to a nonprofit?
A gift through a will or trust is probably the most common way to benefit a nonprofit organization. Some people also like the simplicity of naming a nonprofit as the beneficiary of a retirement account, life insurance policy, or bank account. Naming a nonprofit as a beneficiary offers the advantage that if the person has already created estate plans and doesn’t want to go back to an attorney, she or he can change the beneficiary with a simple form from the financial institution.

Retirement accounts present a unique situation. An IRA, for example, is an excellent tool for building capital tax-free during your lifetime. But part of the bargain that Congress made when it created the IRA is that upon a person’s death, the assets in the IRA do not benefit from a step-up in basis and all withdrawals are taxed at ordinary income rates, which are generally higher than the preferential capital gains rate.

If you donate your IRA to a charity, though, the charity can cash out the IRA essentially tax free.
Consequently, for those who want to give an inheritance to their heirs and to a charity, I often advise people to give appreciated stock or property that is outside the IRA, such as the family home, to children or other loved ones, since those assets benefit from a step-up in basis; and to direct their IRA to a nonprofit. In this arrangement, your estate ends up with a greater value to distribute to the people and organizations you care most about. Both your heirs and the nonprofit come out ahead.

Q: Are there any other estate planning topics you want to cover? 
Some people might be interested in more advanced types of trust documents, such as charitable remainder trusts.

In a charitable remainder trust, you place property into an irrevocable trust where you receive the benefit of the income during your lifetime and at the end of the trust, the principal goes to the nonprofit. You will typically get an immediate charitable tax deduction and can sell appreciated assets held in the CRT without paying capital gains tax, meaning more income for you and more principal for the nonprofit.  

Here’s an example of when a person might consider a charitable trust: Mark owns a rental property and relies on the rent to support himself. He frequently hikes in Sonoma County Regional Parks, but he doesn’t feel like he can donate much at this time. Mark meets with his estate planning attorney and sets up a charitable remainder trust with the Sonoma County Regional Parks Foundation as the beneficiary. This trust pays him a guaranteed monthly income during his lifetime. When he passes away, the remainder of the value of his rental property is donated to the nonprofit Sonoma County Regional Parks Foundation. 

The takeaway: Estate plans cover much more than just wills and trusts, and almost anyone would benefit from creating an estate plan to ensure that their wishes are followed after they pass. If you have a passion for Regional Parks but haven’t been able to support parks as generously as you would like during your lifetime, consider a gift through your will, trust, or IRA/401(k).

The staff at the nonprofit Parks Foundation are happy to speak with you if we can be of assistance. Contact Executive Director Melissa Kelley at melissa.kelley@sonoma-county.org or (707) 565-1830.
​
The views expressed in this interview are provided as general information only and are not intended to be relied on as legal advice.  As always, you should consult with your own legal counsel and tax professionals to determine the appropriate estate planning documents for your particular circumstances. ​

"Being out in the parks is so important," Laura observes. It's refreshing to spend time in nature. In the springtime, it makes me happy to see all the baby animals, like the other morning when I saw a doe and her fawn. Hiking in the parks frees your mind from stress."

Laura has worked for Keysight Technologies and its predecessors for several decades, originally building products for HP and now in Technical Information Services working with planning, procurement and engineering. "I like the fact that Keysight offers so many causes for which they will match donations that are very meaningful to employees," she said. Keysight treats its employees well, and I think its corporate matching program is one of the many benefits of working here."