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Charitable Remainder Trusts one of many options

In today’s booming economy, stock gifts pay off for both donor and charities

Like millions of investors, did you do particularly well in the stock market last year? Do you expect to this year? Are those capital gains killing you?

Well, according to those in the business of raising money, your favorite charity may want to hear about it and you probably should tell them.

While it may be one of the least-used ways of giving to organizations, gifts of stocks and other securities that have appreciated in value often make perfect sense for both the donor and the donee, said Linda Montgomery, executive director of the Greater Jackson Foundation.

“Many wealthy donors do give stock, so they have apparently been advised by their financial counselors of the benefits, tax-wise, of this type of gift,” said Montgomery, who is also president of the Mississippi chapter of the National Society for Fund-Raising Executives.

But with the average donor, that apparently isn’t the case, she said.

As a fund-raiser for Millsaps College and St. Andrew’s Episcopal School, Montgomery said almost all gifts to those programs, even those over $1,000, came in the form of cash.

“I don’t think the average donor — even many of those who do give at the $1,000-and-above level — is aware of the benefit to them of giving appreciated stock,” Montgomery said.

But some organizations make it their business to let them know, and for them educating the public about planned giving is just as important as raising the money, said Don Fruge, CEO of the Ole Miss Foundation, and vice chancellor and professor of law.

“What’s best for them is ultimately best for us,” Fruge said.

Dan Recer feels the same way. As vice president of The Trust, the philanthropy division of Mississippi Baptist Health Systems, author and lecturer, Recer said he conducts over 125 seminars a year that focus on personal estate planning. Discussions about charitable giving are almost secondary to helping people learn how to protect and manage their wealth.

Although Americans are one of the most charitable as a group — giving somewhere around $140 billion a year — Recer said fewer than 1% of Americans leave anything to charities in their estate, whether it is cash, land, a deed to a home or a stock certificate.

But several occurring factors now make it not only plausible, but highly likely, that more Americans are going to considering stock gifts in the future, Recer said. The most notable of these is the current performance of the stock market.

Recer said many people who once may have thought their estate was valued at $200,000 to $400,000, are now finding it shooting over $625,000, the current amount allowed for lifetime exemption from federal estate taxation, thanks to healthy economic conditions. Every $1 over that $625,000 is taxed at 37%.

The very thought of “tipping” the Internal Revenue Service should be incentive enough to find a more creative solution for dispensing of one’s wealth, said Recer, who writes extensively about such creative — but legal — options in his 1997 book “How To Disinherit Your Son-in-Law and Stiff the IRS.”

Although Congress last year increased the lifetime exemption from $600,000 to $625,000, and the limit will rise to $1 million by 2006, the economy is simply growing faster than the increase, Recer said, making stock donations popular.

“The growth of the economy has contributed to that, somewhat,” he said.

One option discussed in Recer’s book, and promoted heavily by such organizations as the University of Mississippi, is the Charitable Remainder Trust, a nearly 20-year-old tax shelter created by Congress but only heavily used in the last decade, Fruge said.

Explained simply in Recer’s book, a CRT holds the donor’s assets and is managed by a trustee who directs the income of the trust to the beneficiaries and upon the death of the donor(s) pays the remaining body of money to the charity.

Besides giving the donor an immediate income tax deduction, the CRT, because it pays no capital gains, often provides a larger return to the donor, Fruge said, sometimes in the area of 5-6%, up from 1-2%.

“They (donors) think were magicians,” Fruge said. “We have quadrupled their income but also given them a charitable deduction.”

Thanks to things like the CRT, Fruge said Ole Miss has enjoyed a tremendous growth in its endowment, going from just $2 million in annual gifts from 2,000 donors in 1984 to $39.9 million in gifts from 10,563 donors as of Dec. 31. To date, the Ole Miss endowment stands at $192.6 million.

As far as donations of stocks and other securities, Fruge said they comprise about 50% of the gifts received by Ole Miss.

Like most non-profit, charitable organizations, the stock is sold almost immediately upon receiving the stock certificate for both legal and practical reasons, Recer said.

“A non-profit doesn’t want to be in the position of gambling on the stock market,” he said. “Donors expect us to be very judicious with their gifts.”

Traditionally, the stock is sold and the money is put under the direction of a money manager who buys a mixture of stock and bonds.

Of course that doesn’t have to always be the case.

Fruge said although it is clearly written that gifts of stock will be sold, such actions are usually done with the consideration of the donor in mind. Obviously, if the gift is meant to be used on a specific project it must be sold “to do what was intended by the gift.”

But do be warned, giving a stock or other securities gift is more complex than simply writing a check. Often, such a decision is made only after consultation between the donor’s attorney, financial advisor and the charity.

And, in the end, said Montgomery, the gift could be more or less than the donor intended, depending on the broker’s fee and fluctuations in the price of the stock.

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