Prichard Committee Receives Endowment Gift of $100,000
The Prichard Committee recently received a gift of $100,000 for its endowment fund from an anonymous donor. It is one of the largest gifts received from an individual in the Committee’s 42-year history.
In addition to the positive impact the gift will have on the Committee’s financial position, it provides an interesting illustration of how donors can use tax-smart giving strategies to make being generous more affordable.
The donor made the gift by transferring stock that they had held for many years, so the stock had appreciated highly. If the donor had sold the stock, they would have had to pay a capital gains tax on the amount the stock had appreciated. By giving the stock to a qualified 501(c)(3) charitable organization such as the Prichard Committee, the donor was able to completely avoid paying a capital gains tax on the appreciated value. In addition to avoiding that tax, the donor was also able to claim a charitable gift deduction up to 30 percent of their adjusted gross income—and that amount can be carried forward for up to five years if it exceeds the maximum allowable deduction for that year. Sound complicated? It is actually pretty simple, as the following illustration demonstrates.
While the following illustration does not use figures specifically from this gift, it does illustrate the advantages of considering using long-term (held for more than a year), highly appreciated securities to fund charitable gifts. The following illustration is based on a donor in the 32% federal income tax bracket and a capital gains tax rate of 15%. While appreciated stocks are the most common such gift, the same illustration applies to other long-term assets. Additionally, this information is for illustration purposes only, and we strongly encourage donors to consult with their financial advisors for information about their unique circumstances.
| Current fair market value of 100 shares of XYZ stock: | $100,000 |
| Purchase price of 100 shares of XYZ stock in 2015: | $20,000 |
| Capital gain on the stock: | $80,000 |
| Capital gains tax avoided (15% of $80,000): | $12,000 |
| Potential charitable income tax deduction (32% x $100,000): | $32,000 |
| Total tax savings ($12,000 + $32,000): | $44,000 |
| Actual “cost” to donor of $100,000 gift ($100,000 - $44,000) | $56,000 |
The endowment fund, which currently is valued at approximately $5.3 million, is managed by the firm, Russell Capital Management, adhering to an investment policy approved by the Prichard Committee Board of Directors, with performance of those investments evaluated annually by the Board. The Board’s spending policy permits an annual draw of up to five percent of the fund’s value, calculated on a rolling three-year average, for operating purposes, with any earnings beyond that amount reinvested.
For more information about gifts of appreciated securities or other tax-smart giving opportunities, you can visit the Prichard Committee’s planned giving page at (https://prichardcommittee.giftplans.org/) or contact Shawn Lyons, vice president and director of philanthropy, at shawn@prichardcommittee.org or at 859-227-0987.