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Fighting Alzheimer's With A Gift Of Tesla Stock

This article is more than 10 years old.

The Tesla Model S is an all-electric sedan. (Photo credit: Wikipedia)

Scott and Mary Ferguson are Tesla fans. He drives a Roadster; she drives a Model S. When Tesla Motors went public, they bought shares at $17, and this fall when the stock was trading at $160 a share, they gave $100,000 worth to the Alzheimer’s Association. “We can thank Elon Musk [Tesla’s billionaire co-founder],” Scott says.

Donors big and small can learn a lesson from the Fergusons—the Bellevue, Wash. couple, both 57, know how to stretch their charitable giving dollars. Whether you’re giving $1,000 or $1 million to your favorite charity, giving appreciated stock can let you bypass a capital gains tax bill, get a bigger tax deduction—and get more to charity. “The stock appreciated so greatly it became a great benefit for us to donate stock instead of cash,” says Scott, who retired from Microsoft (he was the project lead for Visual Basic Version 1.0) in 1998.

So if you have low basis stock (it’s gone up in value since you bought it or inherited it) and you have a charity you’d like to support, think about giving the stock away. “A lot of people have $1,000 worth of stock, but they might not think of giving it away,” says Carol Kroch, managing director of wealth and philanthropic planning at Wilmington Trust whose hi-net worth clients routinely donate appreciated stock. “Giving to charity can be tax efficient,” she says—more on the math later.

The Fergusons first big gift to support Alzheimer’s research was a $240,000 grant in 2005 to Dr. Bruce Kagan, a psychiatrist and neurophysiologist at the University of California Los Angeles. Then the Alzheimer’s Association asked the couple to join its Zenith Society, a rarified group of $1 million and up donors (there are 59 members). Each year the couple’s broker at Morgan Stanley Smith Barney helps them decide what stock would be good to give based on their holdings. The Tesla gift was this year’s installment towards fulfilling the $1 million pledge.

Wanting to maintain their holding in Tesla, the Fergusons bought Tesla stock back (even though the stock has dropped since, Scott is a long-term believer), so the gift basically allowed them to increase the basis in the stock.

That’s a twist savvy donors use, says Conrad Teitell, an estate lawyer with Cummings & Lockwood in Stamford, Conn. and author of the newsletter Taxwise Giving. Say you’re thinking of giving $100,000 in cash, and you have stock worth $100,000 that you paid $60,000 for. If you give the stock, you don’t have to pay capital gains tax on the $40,000 gain, and you get a charitable deduction for the $100,000 donation. Take the $100,000 in cash you were thinking of giving and go out in the market and buy the same stock. “You have stepped up your basis without dying,” Teitell says.

Don’t give away stock that’s gone down in value—in that case you’d want to sell it and take the capital loss, and give the cash. Another rule to watch out for is the ceiling on deductibility for charitable gifts, notes Kroch. If you donate appreciated stock to a public charity it can offset 30% of your adjusted gross income. (If you can’t use the deduction in the year of the gift, it can be carried forward for up to five additional years.)

Yet another calculation: the higher tax rates this year make it more advantageous for high-income folks to make gifts. Basically, the higher your tax bracket, the lower the out-of-pocket cost of making the gift, says Teitell.

Beyond taxes, it’s the involvement in a cause that’s meaningful to them that keeps the Fergusons giving. “They’re invested with their heart, not just their dollars,” says Angela Geiger, chief strategy officer with the Association. Scott's grandmother, Marie Griffin, died with Alzheimer’s in 1988. His mother, Helen Ferguson, passed away a year ago after more than 15 years with the disease. “It’s something that has impacted us very strongly,” Scott says.

Scott biked a 150-mile leg from Los Angeles to Palm Springs on the 2010 Breakthrough Ride to gather signatures to petition Congress to make Alzheimer’s research a national priority. Mary and their daughter, Amanda Ferguson, have helped organize fundraising walks in Seattle.  The couple participates in voting meetings where they review research grant applications and weigh in on the Association’s advocacy efforts. And they’ve held “parlor events” for the Association at their home. Scott says: “It’s an opportunity for people to come into our home and hear our story and perhaps motivate them to do similar types of philanthropy.”

The mechanics of giving stock are simple, but you can’t wait until Dec. 31 to do so. Call the charity of your choice after Thanksgiving (December is the biggest month for stock gifts by far) and talk to the development office about whether they’re set up to take a gift of stock. Most charities are, and many have information on stock gifts on their web sites—not under the “donate now” buttons where you can donate say $10 or $100 by credit card but under “other donation programs” or “planned giving.”  The Alzheimer’s Association has a one page stock gift form here.

In the last fiscal year, the Alzheimer’s Association received $1.5 million in stock gifts out of $100 million in total individual giving. “If more people chose to potentially benefit their own tax situation by giving appreciated stock, they could make an even bigger difference in the fight against Alzheimer’s,” Geiger says.

If your favorite charity doesn’t accept stock gifts, consider setting up a donor-advised fund where you can donate the stock and snag the tax benefits, and then later grant out the money in the fund to the charity of your choice.

See also:

Generous Tax Tricks  for how donor-advised funds trump private foundations.