The Downside of Appreciated Stock


On the face of it, the current merger and acquisition (M&A) boom we’re in the midst of would seem to be a good thing.

How big of a boom is it? Earlier this year KPMG LLP released a report that gushed, “The boom is back: M&A reemerges as leading growth strategy.” And it’s not just KPMG. Mergermarket Group reports that the first half of 2015 saw an increase of 15 percent (or a tidy $1.7 trillion) in U.S. based transactions.

The M&A trend, say experts, demonstrates that the economy continues to rebound, that people are buying and selling stocks and securities and that we’re nearing pre-Great Recession levels of prosperity. All good, right? Almost. Because one unintended consequence of all this merging and acquiring is highly appreciated stock with which an investor is perfectly content becoming the subject of a merger that requires that shareholder to cash that stock in when least expected.

Here at CICF we’ve experienced an uptick in the first half of 2015 in the number of donors who have made charitable gifts of appreciated stock rather than having to cash it in and then pay capital gains tax liability that may exceed 20 percent. (We’re not the only ones experiencing this activity either, says The Chronicle of Philanthropy.) In each case the donor has donated the stock before the corporate transaction was fully approved and before the shares legally gave rise to any income (a very important consideration). These donors have established donor advised funds through which they are supporting their favorite charities and at least in one case, the donor noted that some of his favorite charities could not have accepted his gift of stock.

Donor advised funds are philanthropic vehicles administered by public charities—including CICF—that allow donors to create a charitable giving account, make recommendations for grants made from the account and realize an immediate charitable deduction. Even better, the charity that sets up the donor advised fund manages all of the administrative, back-office responsibilities for the donor.

Setting up a donor advised fund with CICF is easy to do and can be done very quickly. Like to learn more? Contact Mary Stanley, Director of Gift Planning & Legal Affairs, JD, CAP®. She’s ready to help when things come up—including appreciated stock that could be weighing your clients down.