They wanted to donate stock—but there was a problem
Aug 22, 2019
Saving to give means investing charitable assets so that you can give more over time. The following scenario shows the benefits of taking a long-term outlook and carefully choosing what you give to charity.
Jamie and Matt, a married couple with several successful investments, have $100,000 in appreciated stock that they want to donate to charity. With a passion for fighting poverty, they’re excited they will be able to channel their successful investments into charitable giving. They envision supporting programs that promote food security, housing assistance, and job training for individuals striving to make it out of poverty.
Why appreciated securities?
Donating securities held for more than one year (such as stocks, bonds, mutual funds, and ETFs) does not trigger capital gains taxes. Neither you nor the charity will have to pay to give or receive the funds, maximizing the impact of your gift. |
Jamie and Matt know it will be more cost-effective to donate the stock itself—if they sell the stock first and donate the proceeds, capital gains taxes will eat into the value of their donation. But there’s a catch: Jamie and Matt would like to give to a local, grassroots anti-poverty organization. But the three charities they have spoken with have said that they unfortunately are not equipped to accept gifts of stock.
Jaime and Matt go back to the drawing board. Then they realize they already have a solution: Contribute the stock to the donor-advised fund (DAF) they advise at Vanguard Charitable.1
As a public charity, we liquidate the stock without paying capital gains taxes, and put the proceeds into the DAF.2 Jamie and Matt can now make recommendations about how to manage and grant these funds from their charitable giving account.
From Jamie and Matt’s perspective, there is something even better than the tax advantages. They no longer have to choose just one charity among the many they’ve contacted. They can recommend multiple grants from their single donation and boost many different programs.
The couple’s charitable initiative is so successful within their community that Jamie and Matt decide to give more. They begin to make annual contributions of stock. The dependability of this ongoing support allows each of the three charities to plan more ambitious programming. Jamie and Matt watch as their impact grows and track their results.
Jamie and Matt's Giving3
Appreciated securities contribution: | $100,000 per year |
Annual grant: | 7.5% of account balance |
Asset allocation: |
30% bond |
Average return:* | 5.94% |
Dollars granted over 20 years: | $1,485,150.65 |
Balance remaining: | $1,742,016.15 |
Total charitable impact: $3,227,166.80
| |
70% stock
Jamie and Matt’s example shows the value of donating appreciated securities, and how this strategy can work hand-in-hand with saving to give. In the scenario described, Jamie and Matt increase their total giving potential by more than 61%. After $1.4 million of impact over 20 years, Jamie and Matt still have $1.7 million remaining from their annual contributions, and a lifetime of philanthropy ahead of them.
See what else you can contribute
Footnotes
In this scenario, the following assumptions were made:
All investments are subject to risk. Past performance does not guarantee future returns. Diversification does not ensure growth or protect against a loss in a declining market.
All contributions are made as charitable donations to a philanthropic account held at Vanguard Charitable’s donor-advised fund. No startup costs are incurred, but accounts are charged an annual administrative fee based on balance: 0.60% for the first $500,000, 0.30% for the next $500,000, and 0.13% for the remaining balance. Pricing will continue to decrease as account balance increases.
All account assets are invested in a mix of underlying Vanguard® mutual funds, which assess an expense ratio. Expense ratios are assessed by the underlying funds and may vary based on account allocation and status; Vanguard Charitable does not itself charge investment fees.
Many donors contribute to a DAF at year-end and then start recommending grants in the following year. To represent a standard accrual time in the scenarios, contributions are counted on January 1 and grants are issued on December 31 of the respective year.
Invested assets are rebalanced monthly to match recommended allocations. The allocations in the paper are suggestions, and donors are encouraged to diversify their investment recommendations to take advantage of a broad range of investment options, including international and domestic and across major asset classes.
- A gift is not a realization event by the donor. The charity recognizes the built-in gain when it sells the securities, but it pays no tax because it is exempt.
- These values describe the impact of the giving outlined in this scenario alone. They do not include any previous contributions or grants Jamie and Matt may have made to or from the donor-advised fund.
*Actual average return is calculated as a time-weighted return annualized over a 20-year period.
Net performance is based on actual returns of the Investor share class of Vanguard Total Stock Market Index and Vanguard Total Bond Market Index Funds from January 1999 through December 2018. Performance returns reflect market movement, reinvestment of dividends/interest and capital gains, and deduction of the underlying fund’s expenses. Vanguard Total Stock Market Index Fund benchmark: Spliced Total Stock Market Index reflects the performance of the Dow Jones Wilshire 5000 Index through April 22, 2005; MSCI US Broad Market Index through June 2, 2013; and CRSP US Total Market Index thereafter.
Vanguard Total Bond Market Index Fund benchmark: Spliced Bloomberg Barclays U.S. Aggregate Float Adjusted Index reflects the performance of the Bloomberg Barclays U.S. Aggregate Bond Index through December 31, 2009, and Bloomberg Barclays U.S. Aggregate Float Adjusted Index thereafter.
Maintenance fee may be applied
Accounts having a balance below $25,000 may be subject to an annual maintenance fee of $250.
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