Many high-net-worth families have long-term goals of transferring wealth to future generations while also giving back to the communities and causes they value. This article focuses on a strategic, effective and efficient method for carrying out both objectives: donating stocks.
As part of a comprehensive wealth management plan, advisors should, at the very least, discuss the potential benefits of gifting stocks to loved ones and donating stocks to charities for tax-efficient support of generational goals and legacy-building.
Let’s start with the basics of gifting stocks.
Gifting stocks involves transferring stock ownership to a recipient, most often by transferring shares from one brokerage account to another. By gifting appreciated stocks, an individual can transfer both the current value and the potential future appreciation to the recipient—a strategy that can align well with long-term generational wealth planning.
The annual gift tax exclusion allows every person to gift up to $18,000 (in 2024) to as many recipients as you’d like, with the value of the gifted stock assessed on the date of transfer. Assuming the value of the stock is $18,000 or less, the person gifting the stock will not owe any gift tax and will also transfer the responsibility of paying capital gains taxes to the recipient of the stock. The good news here, however, is that the recipient assumes the giver’s cost basis in the stock—meaning they won’t have to pay taxes on the full value of a future sale.
Another advantage of gifting stock is the ability to use the lifetime exemption ($13.61 million in 2024) if the stock’s value exceeds the annual exclusion. In this case, the person gifting the stock may have to file a gift tax return (Form 709), even if no gift tax is owed because of the lifetime exemption.
Other key considerations when gifting stocks are the recipient’s age, risk tolerance, financial situation, personal goals, ability and interest in managing stocks and tax situation. All these factors together can determine which stocks to gift and when to gift them.
As readers are likely gathering, there are some complexities involved when gifting stocks, which makes the involvement of a financial planner and tax professional in this process highly advisable.
There is also the opportunity to donate stocks to charity and other philanthropic causes. Donating stocks that have appreciated in value can be both tax-efficient and impactful. From a tax perspective, donors can avoid paying capital gains tax on donated stocks while also claiming a charitable deduction based on the stock’s fair market value at the time of donation (if they have held the stock for more than one year). This deduction can offset income tax, sometimes resulting in significant tax savings.
Contrast this approach with the decision to sell stock and donate cash directly to charity. The donor would still be able to claim the charitable deduction, but they may owe capital gains taxes on the sale. Donating stock, on the other hand, bypasses the capital gains tax and preserves more of the asset’s value for the charity.
It is also true that charities are often exempt from paying taxes on the sale of donated assets, which can allow them to sell the stock in the future without incurring capital gains taxes—thus utilizing the full value of the donation for their mission.
Much like gifting stocks, there are some complexities families must bear in mind when donating stocks to charity. Stocks must meet specific holding requirements to qualify for the most beneficial tax treatment, and proper records are essential for tax filings. There are also a handful of methods for donating stocks. Donating directly to the charity is the most obvious, with a unique option called a qualified charitable donation (QCD), which I’ll describe below. There are also donor-advised funds (DAFs) and family foundations worth considering.
A QCD refers to a direct transfer of funds from your IRA custodian to a qualified charity. Doing so allows you the benefits of giving to a charity, while also excluding the amount donated from taxable income (maximum $105,000). The direct transfer is critical—if you receive the money directly and then donate it to charity, it no longer qualifies as a QCD.
A DAF is a charitable investment account set up with public charities, which allows families to donate stocks and receive an immediate tax deduction. The family can then advise on grants from the fund to specific charities over time. DAFs are flexible—families control when and where the funds are disbursed, making them ideal for strategic, long-term giving.
Finally, a family foundation is a private foundation established by an individual or family to manage charitable donations. Family foundations typically involve higher setup costs and ongoing administration, but they offer substantial control over grant-making, timing and investment management for long-term charitable goals. Donating stocks can be a key way to provide funding to a family foundation.
Once a family has decided they want to donate stocks to charity, it’s important first to check that your chosen charity accepts stock donations. Not all charities do. I would also strongly encourage conducting thorough due diligence on your charities of choice. Reputable charities tend to have transparent operations, effective programs and efficient spending, which maximizes the value of your donation toward their mission. Due diligence—such as reviewing the charity’s financials, governance and impact reports—helps verify their legitimacy and accountability.
Integrating stock gifting and donations into a broader wealth strategy allows high-net-worth families a mechanism for preserving wealth, aligning charitable giving with family values and investment objectives and making a positive impact that spans generations. Many families benefit from working with a family office or financial planner who can coordinate and optimize these efforts.
IMPORTANT DISCLOSURES
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. In addition, information presented in this presentation is believed to be factual and up to date, but Newport Capital Group, LLC does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.
This presentation includes forward-looking statements and opinions, including descriptions of anticipated market changes and expectations of future activity. Forward-looking statements and opinions are inherently uncertain, and actual events or results may differ materially from those reflected in the forward-looking statements. In addition, all expressions of opinion are subject to change without notice in reaction to shifting market conditions. Therefore, undue reliance should not be placed on such forward-looking statements and opinions.
The tax and estate planning information offered by Newport Capital Group is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Past performance is no guarantee of future performance.