Charitable giving: Cash ‘bad;’ everything else ‘good’

Your clients might think the best way to support their favorite charities is to write a big check.

Wrong, said Bryan Clontz, founder and president of Charitable Solutions.

The holy grail of charitable planning is donating a long-term capital gain asset that has appreciated the most, Clontz said during a recent webinar for the National Association of Insurance and Financial Advisors.

More simply put “Cash is bad; everything else is good,” he said.

Giving cash is the least tax-effective way to make a charitable gift, Clontz said. “From a tax optimization viewpoint, a long-term capital gain asset that has appreciated the most is the best thing to donate.”

The most charitably inclined people always own privately held business wealth or real estate wealth, he said, and that wealth lends itself to tax-efficient charitable giving.

You can donate more to charity than you might think

If you discourage your clients from donating cash, then what can they donate? More than you might think, Clontz said. “More than you ever thought possible, way beyond the balance sheet, way beyond cash,” he said. “People can and do give weird stuff away.”

He gave a rundown of some non-cash assets that clients can donate to charity. Some of those assets may seem to be more conventional, while others fall into the category of “weird stuff.”

• Privately held assets: C-Corp, S-Corp, limited partnerships or limited liability corporations.
• Real estate.
• Restricted stock, which almost always requires a qualified appraisal.
• Tangible personal property, such as fine art and collectibles.
• Weird stuff, which has included a racehorse, part ownership of a professional sports team, a New York Mercantile Exchange seat, a beach house in Mexico, a condominium in Paris, patents, timber deeds, mineral rights, book royalties, and cryptocurrency. However, Clontz discouraged clients from donating live animals to charity, stating that “if it consumes food, it’s bad.”

Donors don’t have to give away their full ownership of assets, he said.  “Too many advisors and way too many donors think they have to give their entire interest away. They might donate the majority interest, but they almost always donate the minority interest.”

Another reason Clontz gave for donating non-cash assets to charity is that capital gain property receives a fair market value deduction and an elimination of capital gains tax if donated to a public charity.

However, not all non-cash assets are accepted by charities. Clontz said 80% of non-cash gifts are rejected for the following reasons:

• Tax or legal complexities.
• Environmental issues.
• Management issues.
• Perceived risk/reward ratio.

 

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