What Is A Gift-In-Kind And How To Realize Their Value
When a donor decides to give to their favourite charity, a gift of cash is not the only option. Donations made in the form of an asset or property that has real value and is not a gift of cash, is known as a gift-in-kind.
Common gifts-in-kind tend to be publicly listed financial securities such as stock, bonds, mutual and segregated funds, or hedge funds—and there are other options as well. A gift-in-kind can also be real estate, such as a donor’s primary residence, a second home, time-share, vacant land and residential income, commercial or industrial property. The list of assets that qualify as a gift-in-kind can be extensive, but not all valuable assets are the same when it comes to donating them to charity. Here are a few key considerations to realize the full potential of a gift-in-kind.
Charities able to accept gifts-in-kind
In most cases, a charitable organization will be able to receive the types of gifts mentioned above. However, some assets which may include special items like works of art or antiques or other complicated gifts can be more challenging for smaller charitable organizations to handle.
In this case, donors can benefit from setting up a Donor Advised Fund (DAF). Gift Funds Canada helps financial advisors set their clients up with a DAF and can provide extensive experience handling complex gifts-in-kind. With an objective, industry-respected, formal valuation, an immediate donation receipt can be provided to the donor. This approach ensures the asset is appraised at fair market value, enables the donor’s preferred charity to receive cash funding as a result of their gift setting up a DAF and, with a monetization plan in place, can extend time for the disposal of the asset in question.
Consider capital gains tax
When a donor wishes to gift appreciated publicly traded securities such as stocks, bonds, mutual funds and segregated funds, special rules effectively eliminate the capital gains tax that they would otherwise have to pay—and it is not uncommon to pay as much as 50% of the appreciated value of the financial instrument in capital gains tax. But if the donor chooses to make a gift of securities to a charity, they will receive a donation receipt for the fair market value of the asset and will incur no capital gains tax on the gifted asset.
Client and advisor relationship
A donor advised fund enables a donor to continue to work with their trusted financial professional who has the best understanding of the donor’s investment and life goals. The advisor can work with their client to advise on grant-making to their preferred causes and recommend when funds are distributed. This puts both the donor and their advisor in a good position to plan their philanthropy now and over the long term.
A gift-in-kind can be a great giving strategy for donors wishing to give valuable assets other than cash. The variety and potential value of each asset can vary greatly but when combined with a donor advised fund, donors can make a positive impact on their favourite charity, while receiving an immediate tax receipt and managing their capital gains taxes.