I'm a Wealth Adviser: This Strategy Is the Lowest-Hanging Fruit in Charitable Giving
You can easily (more easily than you might think!) turn your appreciated stock into a family giving legacy — and bring your family closer at the same time.
A few years ago, a couple came to me after losing their adult daughter. They had millions of dollars in low-basis stock mutual funds sitting in their accounts, money they didn't need and never would for their own living expenses.
What they needed was a way to honor their daughter's memory. As a wealth adviser with 33 years of experience, I helped them open a donor-advised fund (DAF), moved the appreciated shares into it and started directing gifts to causes tied to her life.
Their two surviving sons got involved in choosing where the money went. What began as a tax strategy became something the whole family looked forward to discussing every year.
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If you're sitting on appreciated stock, that same option is available to you. Unfortunately, most people never get there, simply because they don't know the option exists.
The mistake I see constantly
Here's a conversation I see play out over and over: Someone mentions they wrote a check to their favorite charity. I ask where the money came from. They tell me they sold some stock that had done well and donated the proceeds.
It sounds generous, and it is, but it's also the expensive way to give.
When you sell appreciated stock first, you owe capital gains tax on the growth before a dollar reaches the charity.
Donate the stock directly instead, and you skip that tax bill entirely while still claiming a deduction for the full fair market value. You also free up cash you'd otherwise have spent, since the stock itself becomes the gift.
In my years doing this work, I've watched six to eight new families discover this strategy for the first time over just the past five years, usually after their previous adviser never mentioned it.
In my opinion, it's the lowest-hanging fruit in the entire charitable planning world, and most people just don't know it's there.
The 'family charitable checkbook'
The easiest way to put this into practice is through a DAF. I describe it as a family's charitable checkbook.
You fund the account with the "currency" of appreciated stock, mutual funds or ETFs, transferred directly from your brokerage account to the fund.
From there, you "spend" the balance over time by recommending grants to the causes you care about. You don't have to distribute the full balance in the year you fund it, though I encourage the families I work with to do exactly that when they can.
Once the account is open, funding it is simple. Most custodians, like Schwab, have an online process for opening and contributing to a DAF, and moving shares in typically takes a matter of days.
One thing worth knowing going in: A gift to a DAF is irrevocable. You get the deduction the year you fund it, and from that point on, the money belongs to the fund. You only recommend where it goes.
There's also a tax-timing move worth knowing: Bunching. Instead of donating a similar amount every year, you concentrate two years' worth of giving into one, fund the DAF heavily that year to clear the itemization threshold, then skip funding it the following year.
Fund again in year three to cover years three and four, and repeat. You still distribute money to charities on your normal schedule. You're just timing the tax deduction more efficiently.
For high-net-worth families, a private family foundation is sometimes floated as an alternative. I'm not against them, but I haven't had a client start one in three decades, mainly because the setup costs and annual administrative burden rarely pencil out against what a DAF accomplishes for a fraction of the cost.
Where the real value shows up
The tax efficiency is what gets families in the door. What keeps them engaged is what happens at the kitchen table afterward.
I encourage older generations to give each family member — children and grandchildren alike — a budget they can direct through the fund.
The catch: Each person must explain what organization they want to support and why. That single requirement turns a financial transaction into a conversation.
Grandchildren ask their grandparents how they built the wealth in the first place. Parents and grandparents get a natural opening to talk about the sacrifices that got them there.
I've watched these conversations surface a level of gratitude in younger family members that a will or a trust document never will.
Before you open an account, talk as a family about what you value and want to support. That conversation matters more than the mechanics of the fund itself.
Where to start
If you're holding low-basis stock, mutual funds or ETFs you don't need for living expenses, don't sell them to fund your giving. Log into your brokerage account and look up the process for opening a DAF.
It's a shorter process than most people expect, and it's available at nearly every major custodian.
You already have a valuable asset in that appreciated stock. Don't sell it and lose part of it to taxes before you've considered the alternative sitting right in front of you.
Related Content
- Giving Gamechanger: Why Now's the Time to Use a Donor-Advised Fund
- What Can a Donor-Advised Fund Do for You? (A Lot)
- Hey, Retirees: Put Your Charitable Gifts in a Donor-Advised Fund (and Enjoy Your Tax Break)
- Developing a Charitable Giving Strategy: Where to Begin
- How to Give an Inheritance While You're Alive
