Complex Assets Find a Place in HNW Donor Strategies

Mentioned In This Article

Affluent households with philanthropic inclinations are giving more than just cash these days. Officials at the two top donor advised funds in the United States, at Fidelity Investments and Schwab Charitable, say that complex assets are making their way into their coffers. Last quarter, for example, contributions to the Fidelity Charitable Gift Fund of assets such as privately held C- and S-corporation stock and limited partnership interests nearly quadrupled year over year. Those gifts made up almost 10 percent of the total contributions of about $269 million that quarter, compared to 2 percent of the total a year earlier. In the past year, Schwab Charitable accepted a gift of Hawaiian real estate.

Donating complex assets “can be compelling for individuals who hold these securities when they know they’re going to face an exit strategy with automatic tax consequences,” says Sarah Libbey, president of Fidelity Charitable Gift Fund. Such assets are scrutinized closely, with an eye on how marketable they are; Libbey says Fidelity wants to know who the buyers may be beforehand. “The valuation on that asset is something that the donor needs to bring to the table and stand behind, for their tax consequences,” she says. Such valuations are often readily available, she adds; a series of annual audits on a family business, for example, can provide the basis for determining what the owners’ equity is worth if they choose to give some or all of it away.

Schwab Charitable President Kim Wright-Violich says the company’s donor advised fund doesn’t want to hold onto an asset for an extended period, so real estate typically isn’t a popular contribution. Sometimes these charitable funds will employ a non-profit go-between that will accept a complex asset from the donor (who can quickly recognize the tax deduction); the go-between can execute the disposal of the asset over whatever length of time it takes, and then forward the proceeds to the charities for which they’re intended.

With the continued rise in the stock market, HNW investors are increasingly donating appreciated shares of common stock. Last quarter 60 percent of Fidelity’s gift fund contributions were in the form of appreciated stock; that was up from 46 percent in 2010 and 27 percent in 2009. Donors benefit from the contribution in two ways: They pay no capital gains taxes on the appreciation of the stock, and they can deduct its appreciated value on their tax returns.

First-quarter contributions to the Fidelity Charitable Gift Fund were roughly flat year over year, although Libbey said the number of individual contributions to the fund was up 25 percent in that period. Schwab doesn’t break out quarterly results for its donor advised fund but said contributions for the fiscal year through March 31 were up 28 percent. Fidelity’s fund, the nation’s largest, had $5.6 billion in assets at the end of March, while Schwab’s fund had $3.2 billion. Both funds saw record contributions in 2010.