[ASK AN EXPERT] Is setting up stock donations really worth the hassle for a small nonprofit?

Our Ask An Expert series features real questions answered by Claire Axelrad, J.D., CFRE, also known as Charity Clairity. Today’s question comes from a nonprofit employee who wants advice on setting up stock donations:  

Dear Taking Stock,

This is VERY important!

A groundbreaking study by Dr. Russell James J.D., Ph.D., CFP®, professor in the Department of Personal Financial Planning at Texas Tech University, found nonprofits that consistently received gifts of appreciated stocks grew their contributions six times faster than those receiving only cash.

The study shows:

• Received only cash gifts = 11% growth.
• Received any kind of non-cash gift = 50% growth. Included gifts of personal and real property and deferred gifts.
• Received securities non-cash gifts = 66% growth. Massive difference from just this one strategy!

But if you don’t promote stock donations, they’ll likely happen very rarely.

Why you should promote stock giving

Aside from the data reported in the Russell James study, gifts of stocks have significant advantages for donors:

• The donor gets a deduction based on the full fair market value of the stock
• Capital gains taxes on the amount of the appreciation are bypassed
• Donors who want to keep their stock can simply buy new shares with the cash they would otherwise have donated – thereby wiping out all their appreciation/capital gains liability and increasing their cost basis from this day moving forward.

When you proactively share this information with donors, many will be appreciative they’re now able to give more than they’d thought possible – and at a lower cost.

Donors have separate mental accounts and keep track of expenditures based on the mental account it came from.

• Gift from Income (Small Bucket Wallet): When a donor considers a $1,000 contribution against other expenses, the gift may seem too large a percentage of disposable income.
• Gift from Assets (Big Bucket Wallet): When this same $1,000 is considered as a percentage of total wealth (cash savings and non-cash invested assets, personal property, real estate, etc.), the gift may seem a relatively small percentage of investment income.

Most donors would love to make an outsize impact if they could. And if they have appreciated assets, they can.

Set up a brokerage account

It’s a straightforward process. Often you can find a broker willing to offer discounted fees for nonprofits. There are also low-fee providers, and online stock donation platforms that streamline the process. Fill out the application form (usually they’ll ask for documents like your IRS 501(c)(3) determination letter, articles of incorporation, tax ID, bylaws, etc.).  Once donors let you know they’re willing to make a stock gift, simply send instructions telling them precisely what to do – here’s a sample:

Giving appreciated assets is as easy as 1-2-3!

1. Decide which stock and the number of shares you wish to transfer to (your organization’s legal name).
2. Provide written instructions to your broker to deliver those shares to the following account that has been established for (your organization’s legal name). [Include account number; direct transfer number; broker name and company; phone, FAX and email].
3. Copy your letter of instruction to [Name and contact information for someone at your organization].

Also let donors know if they prefer to use their own broker you are willing to set up an account with their preferred brokerage. Be sure to let them know, however, you use the broker you do because they give you a preferred rate and/or offer security and efficiency.

Actively promote stock gifts

Donors may never have considered giving from wealth rather than from spare income. Knowing this is not only possible, but easy, gives them freedom to be generous.

Many donors won’t think of this without a prompt from you.

Spell this out for them by keeping it simple. Here’s an example from the San Carlos Education Fund:

When website visitors click on, or hover over, your “donate” menu tab they should see “appreciated securities” as one of the “ways to give” options.

Remember, you’re the one that needs to plant this idea. If donors see this on other charity websites, and not on yours, they’ll assume you don’t accept stock gifts.

Once you’re set up to accept appreciated assets – i.e., take stock – you’re making giving more beneficial for both your organization and your donors – so, toot your horn!

— Charity Clairity (Please use a pseudonym if you prefer to be anonymous when you submit your own question, like “Taking Stock did.)

How does your organization navigate stock donations? Let us know in the comments.