Navigating Charitable Giving For High-Net-Worth Individuals

Charitable giving is more than just a financial transaction—it’s a meaningful way to support causes that reflect your values and passions. For high-net-worth individuals (HNWIs), charitable giving offers practical benefits, including tax advantages, legacy building, and the opportunity to shape a philanthropic narrative for future generations.

In this blog, we’ll explore an often-overlooked aspect of charitable giving: donating non-cash assets. You’ll learn why non-cash donations can be a more advantageous and impactful strategy for HNWIs and how investors can align financial goals with philanthropic endeavors.

What’s a Non-Cash Asset?

Non-cash assets include various items such as real estate, stocks, jewelry, vehicles, cryptocurrency, artwork, and more. These assets tend to appreciate over time and often allow for significant tax deductions, potentially making them even more valuable than cash donations.

Benefits of Donating Non-Cash Assets

There are three main benefits of donating non-cash assets:

1. Tax advantages

2. Increased philanthropic impact

3. Personal and financial rewards

For high-net-worth individuals, one of the most compelling reasons for donating non-cash assets is the potential for significant tax savings. Donors can also avoid capital gains taxes, which are typically levied when selling assets, thus preserving more of their wealth for charitable purposes.

When high-value non-cash assets are donated, charities have a lot of flexibility in how they utilize them. They can either use the asset or sell it to fund their programs. This means that the donation can provide a much larger financial boost than a cash contribution, often leading to a more meaningful impact on the organization and the communities they serve.

Let’s take a look at a fictionalized example of this in action. In this example, we’re looking at a nonprofit organization that supports families in transition from homelessness to stable housing. A real estate developer is considering whether to donate a building valued at $500,000 directly, or $500,000 in cash. While cash would offer flexibility to the nonprofit, the building offers something that cash can’t - immediate use as a temporary shelter for families in need. By donating the space, the donor is helping the charity save on leasing costs, and giving them the ability to serve more families. Over time, this gift could allow them to allocate their limited cash flow to other essentials like staffing and programming, creating a larger long-term impact. 

For donors, giving non-cash assets provides a way to streamline their portfolio by offloading assets that may no longer serve their financial goals. At the same time, it allows donors to financially support the causes they care about. For example, if you have a real estate property that’s no longer serving you, you could donate it to an animal shelter so the organization can transform the space into an adoption center. 

Donating Real Estate Property

If you no longer want or need a property, the first thought that likely comes to mind is to sell it. But selling isn’t the only option. Many individuals donate unused or unwanted real estate directly to a charity in need.

Real estate donations can take many forms, from residential homes to commercial buildings, land, and even undeveloped property. Each type of real estate offers unique opportunities and considerations for both the donor and the charity.

Donating real estate involves a few key steps. Donors must:

1. Obtain a professional valuation

2. Complete an appraisal

3. Transfer the deed ownership

4. Create a donor-advised fund

The process can be quite complicated, so donors should coordinate with legal professionals and financial advisors to ensure compliance with regulations. Charities also often work closely with donors to navigate this complex process.

When donating real estate, the tax deduction is usually based on the property's fair market value, with certain deduction limits depending on whether the asset is classified as long-term or short-term. Donors must also file IRS Form 8283 for donations over a certain value to substantiate the deduction.

Donating Private Company Stock

If you don’t have additional real estate lying around, many high-net-worth individuals choose to donate their company stock to charity. Donating private company stock can be complex, particularly when determining the stock's market value, but donating these shares can unlock significant tax benefits while supporting charitable causes.

There are many benefits to donating company stock, including:

• Eliminating capital gains and Medicare surtax

• Minimizing income tax deduction

• Maximizing charitable benefits

There are several methods for donating private stock, including direct donations to charities or using donor-advised funds (DAFs). DAFs can be an effective intermediary, allowing donors to bypass some of the liquidity and marketability issues associated with private stock.

Donating Other Non-Cash Assets

Beyond real estate and private stock, non-cash assets include art and collectibles, intellectual property, and cryptocurrency. These assets may hold significant value, making them an attractive option for charitable donations.

All non-cash assets, whether it be art or intellectual property, should be evaluated by a professional appraisal. They will provide the correct documentation to substantiate the donation's value and maximize tax deductions.

Because each type of non-cash asset differs, the transfer, legal processes, and tax rules vary. Whether it's transferring the title of a piece of artwork or ensuring the proper handling of cryptocurrency, it’s important to work with legal professionals to ensure everything is done correctly.

Maximize Your Philanthropic Impact: Work With A Financial Advisor

Can you imagine trying to navigate charitable giving on your own? From tax rules to legal considerations to valuations, donors need a team of financial and legal professionals to guide them throughout the donation process. 

Financial advisors play a crucial role in guiding HNWIs through the process of donating non-cash assets. They help donors plan strategically, aligning charitable giving with broader financial goals and ensuring the maximum tax benefits.

Legal advisors are equally important, ensuring all donations comply with tax laws and other relevant regulations. From drafting necessary documents to handling asset transfers, they provide valuable expertise.

If you’re considering charitable giving and want to maximize the impact of your donation, now is the time to explore the advantages of donating non-cash assets. Our team at North Ridge Wealth can help identify organizations whose missions align with your values to ensure that your contributions are used effectively. Get in touch with us here!