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Annual Giving

Planning Your Gift

Planning Concepts for Appreciated Securities

Committee on Development Meeting

June 6, 2003

In recent planned giving minutes, we focused on gifts of property, real and tangible. As an optimist, I believed that perhaps we could begin to discuss gifts of appreciated securities once again. So I called Ralph Hansmann who observed that, in general it looks as if equities will trend upward, with plenty of ups and downs. He stressed that no one can predict what will happen and focused on selectivity, reminding everyone that we should look at equities as "A market of stocks, not a stock market." With unusual good fortune, economic, stock market and tax factors have been favorable to Hamilton in each of the four capital campaigns conducted since 1975. The tag line from a prior campaign, "A bright past, a shinning future" continues to guide us as we move forward.

Appreciated securities are the most common asset contributed to Hamilton. You may be working with potential donors to Hamilton who wish to accomplish multiple objectives - philanthropic and personal planning - through a "planned" charitable contribution.

As the markets recover and individuals begin to think positively, it is timely to discuss potential strategies with a stock that has declined in value from its high but remains at a price greater than what the prospective donor paid for it.

For donors who have concerns about the possibility of appreciation of a particular holding, they could contribute some shares to Hamilton, or in more complex cases, "contribute some stock to Hamilton and sell some stock" or make a contribution in trust. These strategies allow donors to diversify their holdings in a tax-wise way.

For those individuals who are more optimistic about the future of a particular stock, the stock holder has every reason to believe that the stock will increase in value to its high and beyond, two alternative strategies exist to pass the stock - and future appreciation - to heirs. The first transfer strategy may meet personal planning objectives - in planned giving we hope to "do well by doing good," while the second may meet philanthropic as well as personal planning objectives.

In either case, the stock holder avoids income and capital gains tax on the assets given to heirs, or placed in trust for delivery to heirs at a later date.

Transfer Strategy 1. Use the annual gift tax exclusion to transfer some shares to heirs. If for example, XYZ stock is trading at $50, down from $100, the stock holder can transfer 220 shares rather than 110 shares to each heir. A husband and wife could transfer 440 shares to each heir. The market decline provides a 50% bonus in building wealth for heirs.

Transfer Strategy 2. Fund a charitable lead trust with shares of XYZ and other assets. A lead trust provides payments to Hamilton for a term of years after which the principal - and all appreciation - is transferred to heirs.

The value of the interest passing to heirs is "discounted" according to an IRS formula providing significant gift and estate tax savings. Usually lead trusts are funded with assets expected to appreciate, using XYZ shares provides an additional 50% discount. Also, in some cases, the value of the remainder passing to heirs decreases as interest rates decline. The IRS interest rate for June is as low as it has ever been.

Charitable lead trusts may be established during one's life time or by Will. While economic factors suggest establishing a lead trust now, for potential donors who believe that gift and estate taxes will be eliminated, a testamentary lead trust may accomplish personal planning and philanthropic objectives in the event the laws do not change before the Will becomes effective.

We are available to assist potential donors evaluate contributions of securities in the form that is most advantageous to the donor.

Before closing, I should note that the CARE Act of 2003 continues to move forward as the Senate passed S. 475 by a huge margin. The legislation includes a number of initiatives for charitable giving including lifetime tax-free rollovers from IRAs to charitable organizations (outright and in trust) and an income tax charitable contribution deduction for those who do not itemize.


At Your Service

Hamilton makes a number of resources available to you, including the following:

Email Ben Madonia '74 or Joni Chizzonite or call 1-866-729-0317 for more information.