December 11, 2000

As the end of the calendar year approaches, many people are engaged in tax planning. Whether or not this planning includes the University of Connecticut, says Kevin Edwards, director of treasury services for the UConn Foundation, it probably does include charitable donations.

"There are several things to be mindful of when making charitable gifts," he says, "especially at the end of the calendar year."

Timing of the Gift
Generally, charitable gifts are deemed completed when control over the assets has been transferred from the donor to the charity. For gifts of cash and securities this means different things, depending on how the gift is transferred. The following summarizes when a charitable gift of cash or securities is made for income tax purposes:

Gift is mailed - The gift is effective on the date mailed as indicated by the postmark, not on the date on the check or the date the certificate is signed over.

Physical delivery - If you hand the gift to a representative of the charity, that is the effective date of the gift.

Electronic transfer - The gift is effective the date the funds are reflected on the charity's bank or brokerage account, not the date you instructed your bank or broker. Electronic transfers are also affected by volume, and may take up to several days to move from one account to another. This is especially true the closer you get to Dec. 31.

Another consideration with transferring securities is if you send the certificates to the company to be reregistered in the charity's name. In that case the effective date of the gift is the date the company reflects the change of ownership on their books. This can take several weeks from the time the certificates are sent in.

Gifts of open-end mutual fund shares may require additional paperwork and take longer to transfer than shares of individual securities. It is wise to alert the charity several weeks before you intend to make a gift of mutual fund shares.

Value of the gift
Establishing the value of a charitable donation is obviously important in determining the full impact on your tax situation. The value of a gift of cash is equally obvious (as the saying goes, "Cash is cash"), unless you have received a benefit in return for the donation. The value of the gift would be reduced by the value of the benefit received. However, for gifts of securities the valuation is more involved. Marketable securities are valued at the average trading price on the day the gift is made. There is a common misconception that the gift is valued at the closing price on the date of the gift. For gifts of private or illiquid securities you should contact your tax advisor.

Determining What to Give
This will ultimately depend on your own financial and tax situation. However, if you are considering a gift of securities you should keep in mind the potential tax consequences of how you make your gift.

As these past few years have produced great appreciation in stock valuations, it would be to your benefit to transfer the stock. Property held for more than 12 months earns a charitable income tax deduction equal to the property's full fair-market value, subject to a limit of 30 percent of adjusted gross income, and you avoid paying capital gains tax on the securities. If you can't use the entire deduction this year, it may be carried forward and used in future years.

You may also have securities that have been held for more than one year and have not performed along with the rest of the market. In this case it is probably more beneficial to sell the stock, take the loss, and donate the proceeds. You would benefit from the charitable donation and the realization of capital losses, which can directly offset any capital gains you may have.

Again, contact your tax advisor to determine what will work to your best advantage. The Foundation's gift planning office is also happy to answer any questions you may have on making gifts or how to set up a gift to provide tax benefits plus a steady income stream. Questions on these issues may be directed to Kevin Edwards: (860) 486-5000; e-mail: kedwards@foundation.uconn.edu