Non-Traditional Gift Options

While many givers make gifts of liquid assets to benefit their favorite ministry or charity, more than two-thirds of gifts to WaterStone have been “Non-Traditional Gifts”.

Non-Traditional Gifts are classified as anything other than cash or readily marketable securities. These gifts, while more complex than others, offer significant tax advantages and potentially greater charitable outcomes. A giver’s charitable income tax deductions represent one of the few tax planning opportunities within the individual’s control. Gifts of hard-to-value assets that have appreciated in value over the years can provide the giver with additional tax benefits not associated with gifts of liquid assets such as cash. These assets are generally subject to long-term capital gain with a tax rate of 20% if the owner disposes of the asset. However, when the appreciated asset is gifted to WaterStone, the capital gains tax is avoided. Also, the giver receives a charitable income tax deduction for the full value of the asset.

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Hard To Value Assets

We’ve supported many clients through giving a variety of complex assets. Hard-to-value assets come in many forms, but real estate and business interests are the most commonly used assets for charitable purposes:

Real Estate: raw or undeveloped land; farms and farm land; single-family residences; condominiums; apartment buildings; timeshare units; vacation homes; rental property; commercial property; conservation easements; property with a remainder interest; and property with a retained life estate.

Business Interests: commercial business holdings; C-Corporations; S-Corporations; limited liability corporations (LLC); general partnerships (GP); limited partnerships (LP); limited liability partnerships (LLP); family limited partnerships (FLP); and sole proprietorships.

Other: retirement plan assets; closely-held or non-publicly traded securities; promissory notes; mortgages; insurance policies; tangible personal property; oil and gas interests; mineral rights; coal rights; precious metals; and intellectual property.

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Tax Benefits

When individuals consider selling or transferring ownership in an appreciated non-traditional asset, they face major tax consequences. However, by supporting their favorite charitable organizations, these givers can avoid federal capital gains tax on their appreciated assets. By gifting the asset instead of selling it, charitable purposes and tax reduction or avoidance can be accomplished.

Federal tax law provides tax advantages for charitable gifts depending on the type of asset given and the manner in which the gift is made. A charitable gift provides an income tax deduction for givers who itemize on their federal income tax return. The deduction is limited to 30% of AGI on gifts of appreciated assets. The assets that are the best to give are those that have increased the most in value and would result in the greatest capital gains tax if sold. Capital gains tax of 15% on any appreciated asset that is held for more than one year can be avoided by gifting the asset instead of selling it. Any gift also reduces the value of an estate, resulting in a reduction in federal...

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Gift Acceptance Criteria

When considering a gift of a non-traditional asset to WaterStone, it is essential to contact WaterStone early in the transfer process because of the unique characteristics of non-traditional investments. WaterStone will accept gifts that comply with WaterStones’ acceptance policies and that meet standard regulations established by the IRS. These gifts will require a comprehensive review of:

  • Proper documentation
  • Marketability
  • Governance
  • Qualified appraisal
  • Fair market value
  • Unrelated business income tax liability (UBIT)
  • Legal liability, both contingent and actual
  • Contractual obligations
  • Tax obligations
  • Shareholder and partnership rights
  • Applicable restrictions and limitations on sale of the asset
  • Encumbrances, debt, liens
  • Administrative and legal fees
  • Carrying costs such as association dues, taxes, insurance, maintenance fees
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Liquid Assets

Liquid assets are comprised of cash, checks, savings accounts, certificates of deposit (CD), money market funds, Treasury bills and appreciated securities such as publicly traded stocks, bonds and mutual funds. Securities are valuable assets that can realize substantial capital gains as they appreciate in value. When deciding on gifting securities, consideration needs to be given to the original cost (cost basis) of the securities in relation to their present value (market value). The cost basis is the acquisition price, reduced by depreciation deductions and increased by improvements. When securities have increased in value, it is much more beneficial to a giver to transfer the securities to WaterStone rather than selling them. With careful planning, givers can reduce or avoid the capital gains tax while receiving a tax deduction for their charitable giving.

When WaterStone receives a gift of appreciated securities that have been held long term (more than one year), the gift qualifies for a charitable tax deduction based on the full market value, not just the original...

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