The Webb Schools

Multiply Your Generosity with Gifts of Stock

The bull market of 2012 raises an intriguing question for investors:  What is the best thing anyone can give away to the organizations they support?  Tax-wise, the answer is securities that (1) have gone up in value and (2) have been owned more than one year.

Friends who give highly appreciated stocks receive a double tax benefit that enables them to magnify the impact of their generosity.  They can deduct the full fair market value of their investment – not just what they paid originally – and they save again by avoiding all capital gains taxes on their “paper profit.”

Gifts of stocks are easy.  If your stocks are held in a brokerage account, give your broker instructions as to which shares you wish to transfer and alert your broker to call our office immediately.  You should contribute shares in which you have the lowest cost basis (that is, shares with the most capital gain).  Your gift is complete, for tax purposes, on the date your stock is actually transferred into our account.  If you have the stock certificates in your possession, please call our office for transfer instructions.

Mutual fund shares can be given with the same beneficial effect as listed and actively traded stock.  If you decide to contribute mutual fund shares, please notify us as soon as possible and send us a copy of your mutual fund statement.  Transfers can take from two to six weeks to accomplish and we will need to work with you and your account manager to make the gift effective for the current year.

Tips and Traps on Beneficiary Designations

Good estate planning includes blending the provisions of your will and/or living trust with all the beneficiary designations you’ve made on life insurance policies, IRAs and other financial accounts.  Here are some points to keep in mind:

• Most financial accounts (savings, checking, certificates of deposit, etc.) can be payable on death (POD) to a friend or family member; securities held in brokerage accounts generally can name a beneficiary under Transfer on Death (TOD) registrations;

• A beneficiary designation (on a life insurance policy, for example) supersedes a provision in your will leaving the asset to someone else;

• If you fail to name beneficiaries for life insurance, securities or financial accounts, they will become part of your estate and pass under your will or state intestacy laws – and become subject to probate;

• Some beneficiary designations carry legal restrictions; for example, a spouse’s consent is required to pass a qualified retirement account (but not an IRA) to someone other than the surviving spouse; also, U.S. savings bonds cannot have a charitable organization as beneficiary;

• What would happen if a named beneficiary dies before you?  You should always provide for contingent beneficiaries, such as children of the deceased beneficiary or different beneficiaries, if that is your wish;

• Consider the income tax consequences of naming beneficiaries.  Get professional advice when naming beneficiaries of retirement accounts, which are usually subject to federal and possibly state income taxes, depending on where your beneficiary resides.

• If your goal is to divide your estate equally among several beneficiaries, name each to receive a percentage of every account or insurance policy (passing your life insurance to Charles, an IRA to Sally and your CDs to Hermione may not achieve your goal of equality);

• Review your beneficiary designations on a regular basis, along with your will and other estate documents;

• Consider naming charitable organizations as beneficiaries – especially of retirement accounts, which can avoid both income taxes and estate taxes.

A Learning Exercise for Spouses

Every wife and husband realizes the inevitability that one of them will outlive the other and perhaps spend many years as a widow or widower.   Spouses should prepare for life without their marriage partner to be ready when the time comes not only to handle the details and decisions that follow a spouse’s death but also to deal with financial and practical matters.

Both husbands and wives should understand the financial aspects of their partnership.  With that in mind, consider choosing a month every year when the person who handles household financial tasks “trades jobs” with the other spouse.  If your spouse typically pays all the bills, consider taking over that assignment for the entire month of his or her birthday.  Talk with your spouse about why certain checks are being written, such as payments for insurance or estimated taxes.  Take turns making deposits in your checking and savings accounts.  Make sure both of you have full understanding of your investments and other sources of income. 

Timing Can Be Everything in Gift Planning

Wise charitable gift planning often is a matter of seizing opportunities and acting at just the right time.  Please call our office before you:

• Sell investments at a profit;

• Make or amend your will or establish a living trust;

• Sell your business;

• Sell real estate at a profit;

• Roll over low-interest CDs or bonds at maturity;

• Make a Roth IRA conversion;

• Name beneficiaries for retirement plans or life insurance.

Tax-saving gift opportunities are available that can reduce or avoid capital gains taxes, or save state and federal estate taxes and income taxes – or possibly all of the above.  Many gift plans can even provide you or a loved one with lifetime income, and tax savings, as well.  We would be happy to talk over all the possibilities with you and your advisers.  Just contact our office.

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