Gifts of Marketable Securities and Other Financial Assets

Presenters Martin Hayter, Director, UCSD Office of Planned Giving Martin Hayter, Director, UCSD Office of Planned Giving Marlene Shaver, Assistant Vice Chancellor, Information Technology and Financial Systems Marlene Shaver, Assistant Vice Chancellor, Information Technology and Financial Systems

Outline 1. Character of a gift of marketable securities 2. What tax advantages are there to these gifts? 3. How are they handled and what policies and legalities apply? 4. What about non-marketable securities? 5. Questions

What is the Character of A Gift of Marketable Securities ? A gift of securities (or other non-cash financial assets) is a “gift-in-kind”. That is, not a cash gift, but a gift of a tangible asset that can be retained or sold. A gift of securities (or other non-cash financial assets) is a “gift-in-kind”. That is, not a cash gift, but a gift of a tangible asset that can be retained or sold. Gifts of securities can be made to either the UC Regents, or to the UC San Diego Foundation. Policies and outcomes are almost identical for either entity for these types of gifts. Gifts of securities can be made to either the UC Regents, or to the UC San Diego Foundation. Policies and outcomes are almost identical for either entity for these types of gifts.

Tax Advantages A gift of marketable securities permits the donor to declare the fair market value of the stock, on the date of gift, as the donation value. A gift of marketable securities permits the donor to declare the fair market value of the stock, on the date of gift, as the donation value. The donor effectively transfers the appreciated asset, tax free, to the charity. The donor effectively transfers the appreciated asset, tax free, to the charity. The charity gets to sell the gift at FMV without the effect of capital gain taxation (tax exempt) The charity gets to sell the gift at FMV without the effect of capital gain taxation (tax exempt) Everyone wins, except the IRS! Everyone wins, except the IRS!

How are Gifts of Securities Handled? 1. Required gift documentation 2. Effective transfer of securities 3. Sale and allocation of proceeds 4. Gift Valuation and posting of the gift to Millennium 5. IRS Reporting Requirements 6. Receipting

Required Gift Documentation Similar to any other gift, a donor letter is required which states that a gift of securities will be made, the exact securities to be gifted, how they will be transferred, and purpose of the gift, including any pledge payment applicability. Similar to any other gift, a donor letter is required which states that a gift of securities will be made, the exact securities to be gifted, how they will be transferred, and purpose of the gift, including any pledge payment applicability. Templates exist for both donor letters and brokerage/transfer agent instructions. Contact Planned Giving or UCSD Foundation Templates exist for both donor letters and brokerage/transfer agent instructions. Contact Planned Giving or UCSD Foundation

SAMPLE DONOR LETTER Donor Name Address[Date] Address letter to Department, Dev Officer, PG, or Foundation Dear XX I/We wish to provide support to [insert program or department name] at the University of California, San Diego. I have instructed our broker, [insert name], at [insert brokerage firm name] to irrevocably transfer [insert number] shares of [insert name] common stock to [The Regents account at State Street Bank and Trust] or [The UC San Diego Foundation account at Merrill Lynch] in accordance with the security delivery instructions provided to me/us. The date of the stock transfer is expected to be [insert date].

Donor letter continued The gift will be used to [credit an existing pledge or create a new fund] under the expenditure direction of [insert name of chair of dept or researcher] for the purpose of [insert]. I/We understand, in accordance with UCSD policy, that a one-time 4% administrative fee will be deducted from the gift proceeds. The gift will be used to [credit an existing pledge or create a new fund] under the expenditure direction of [insert name of chair of dept or researcher] for the purpose of [insert]. I/We understand, in accordance with UCSD policy, that a one-time 4% administrative fee will be deducted from the gift proceeds. [If a new gift for endowed purposes, gift letter should include endowment language and caveats] Please issue a gift receipt for the stock donation to the address as noted above. If there are any questions about this gift, please call me/us at [office phone]. Sincerely,

Transfer of Shares and Legalities Donors need to ensure that legal ownership of the security is effectively and properly transferred into the name of the charitable entity (UC Regents or UC San Diego Foundation). Donors need to ensure that legal ownership of the security is effectively and properly transferred into the name of the charitable entity (UC Regents or UC San Diego Foundation). The charity MUST become the official owner of record of the stock in the corporate records. The charity MUST become the official owner of record of the stock in the corporate records.

Transfer of Shares and Legalities (c ont) Effective transfer is accomplished by: Effective transfer is accomplished by:  Delivery of the securities via electronic DTC transfer from donor’s brokerage account to either The Regents or Foundation brokerage account. Date of gift is the date securities are received into our account.  Delivery of properly endorsed stock certificates to either The Regents or the Foundation, with stock power. Donors should not endorse the back of stock certificates. Separate stock power forms should be used. Consult with Planned Giving or Gift Administration for proper handling. Date of gift is the postmark date for US Mail, or the delivery date if by Fed Ex or UPS.  Re-issued stock certificate by transfer agent in the name of The Regents or the Foundation. Date of gift is the date of the reissued certificate.

Sale and Allocation of Proceeds Policy: Securities will be sold immediately at market. Policy: Securities will be sold immediately at market. Proceeds, net of selling costs, are made available for the purpose for which the gift was given. Proceeds, net of selling costs, are made available for the purpose for which the gift was given.

Gift Valuation, Proceeds and Posting on Millennium Valuation of the security gift is the average of the high and the low price as published by the exchange on the date of the gift, times the number of shares given. Valuation of the security gift is the average of the high and the low price as published by the exchange on the date of the gift, times the number of shares given. Donor records reflect the VALUE of the gift as noted above. Pledges are reduced for that valuation. Donor records reflect the VALUE of the gift as noted above. Pledges are reduced for that valuation.

Gift Valuation, Proceeds and Posting on Millennium (cont) Proceeds are HIGHLY LIKELY to be different than the valuation. The market changes second by second, and it is unlikely to sell a stock for exactly the average of the high and low of the day! Further, all sales have commissions and selling costs. Proceeds are HIGHLY LIKELY to be different than the valuation. The market changes second by second, and it is unlikely to sell a stock for exactly the average of the high and low of the day! Further, all sales have commissions and selling costs.

IRS Requirements? For gifts of marketable securities, donor WILL NOT need an appraisal, but WILL have to submit an IRS 8283 form with tax return 8283 Form Instructions

Receipting Gifts in kind, including gifts of marketable securities, are receipted only with a description of the gift. No values are provided. The words “value as declared by donor” appears in the amount section of the receipt. Gifts in kind, including gifts of marketable securities, are receipted only with a description of the gift. No values are provided. The words “value as declared by donor” appears in the amount section of the receipt. Donors are responsible for determining the value they will deduct on their tax returns. Donors are responsible for determining the value they will deduct on their tax returns. Donors are advised of how UCSD calculated the value of their securities gift in a separate letter sent out by Gift Administration. Donors are advised of how UCSD calculated the value of their securities gift in a separate letter sent out by Gift Administration.

Gifts of Non-Marketable Securities Non-marketable securities may include: Non-marketable securities may include:  Certificates subject to restrictive legends  Non-publicly traded companies Contact Office of Planned Giving, as both situations are tricky! These gifts must be evaluated for acceptance and sale, and donors must be advised of valuation issues. IRS requirements for appraisals are often invoked. Contact Office of Planned Giving, as both situations are tricky! These gifts must be evaluated for acceptance and sale, and donors must be advised of valuation issues. IRS requirements for appraisals are often invoked.

Questions?