PG Calc Blog

The question of why charities need the donor’s cost basis for long-term appreciated stocks funding charitable gift annuities (CGAs) comes up frequently in our client support calls. If the donor doesn’t provide the information up front, do they really need to pursue it? What if the donor says he doesn’t have the cost basis information? Can the charity simply assume zero for the cost basis and call it a day? What difference does it make anyway? Why it matters PG Calc’s Planned Giving Manager prompts the user to supply the dollar amount the donor paid for the stock when it was originally acquired – or, in the case of inherited stocks, the official value of the stock on the date of death of the previous owner (AKA the “stepped-up” cost basis).* This information is relevant and necessary because charitable gift annuities are split-interest gift arrangements. In each CGA, there is a benefit for the charity (the remainder or residuum), and a benefit for the annuitant (the value of the stream of annuity payments over time).

Most gift planners know that when long-term appreciated, publicly-traded stock is contributed for a gift annuity or a charitable remainder trust, the way in which payments to beneficiaries will be taxed depends in part on the stock’s cost basis.  By contrast, when such stock is used to make an outright gift, cost basis is generally regarded as having no significance, as none of the gain is taxable to either the donor or the charity.

In the realm of gift planning, there are a number of terms that we use often. For those new to gift planning or those looking for a refresher, this is the first in a series of articles entitled: “5 Terms Every Gift Planner Should Know.”