Thinking Beyond the Checkbook: Consider Non-Cash Gifting Strategies

As a gift strategist at WaterStone, Stephanie Hoff helps donors envision creative and tax-efficient ways to make a difference for their favorite causes. We send some donors her way after they’ve created a full legacy plan–and want to set up trusts or donor-advised funds to help achieve their goals. But she also knows a thing or two about gifts that can be made now, and her advice might come in handy as we approach year-end.

Apex: First off, tell me about your background. How did you find your way into charitable gift planning?

Stephanie: I’m a CPA. My background is in accounting, and I worked at a government contractor before I started at WaterStone five years ago. I guess you could say I used to spend taxpayer dollars…now I save taxpayer dollars! It’s a fun place to be.

I have a background in ministry, and a numbers focus, so it felt like a great fit. I started in a financial analyst role and quickly moved into a gift strategist role. My main focus is helping families make–and nonprofits receive–gifts of complex and/or appreciated assets. “More money to charity and less money to the IRS!” could be my motto. 

Apex: Tell me a little bit about WaterStone. What’s unique about the organization, and how can you serve donors?

Stephanie: Our legal name is Christian Community Foundation, Inc., but we do business as WaterStone. We’re based in Colorado, but serve donors nationally. Our bread and butter is donor-advised funds (DAFs or “Giving Funds”), which pay out on average $2M/week to nonprofit organizations. They’re very flexible, so they’re really a reflection of our donors. For example, we’ve seen a huge uptick in funds set aside for Ukrainian refugees. 

The only requirement for a DAF disbursement is that it must be made to a public 501(C)3. We do some due diligence to make sure the organization is legitimate, and also to make sure they’re not antithetical to our statement of faith. But other than that, there are no requirements on the percentage of funds that need to go out annually, minimum balance, etc. There are also lots of anonymity options. It’s a great option for high net worth donors who want their giving to stay private.

Apex: Tell us a little about the breadth of ways you can serve donors–through a WaterStone Giving Fund or otherwise–and how you help them find the best options for their situation.

Stephanie: Every donor is so unique! We have 18 employees, so we’re a relatively small shop, and provide high-touch service for our clients. Some want to get DAF money to charity right away, others want to send it over a period of time, and others invest for growth and send the annual earnings to charity like an endowment fund. All growth within a DAF is completely tax-free!

Some use a giving fund to facilitate leaving a meaningful legacy, and set their kids/heirs up as successor advisors on the account. Many Apex donors are all about the successor advisor benefits. These funds might not go to charity for 40, 50, 60 years. But the owners want their kids to have a say in how the funds are distributed, and to play a role in being generous on their behalf. Donors are so unique in what their strategy is and how they want to steward the resources God has given them. 

Apex: Let’s look back at the last year. What have you been seeing as far as giving trends?

Stephanie: A huge array of things! We had one single grant last year for $15M. Others simply want to give their church a standard, automated monthly amount so they, and the church, can plan and budget. 

We saw contributions to DAFs more than double last year, though! There’s lots of talk of potential tax legislation changes coming, and interest rates are climbing. But with the state of the market over the last year or two, people have been able to borrow money cheaply. They’re liquidating companies before tax rates change, so it’s wise to get a foundation like WaterStone–or another charity–involved before those high-income events. If they can make a gift of an asset–even a partial gift of real estate or business interest–it can be a huge tax advantage!

Four years ago, we were sending $1M/week out of our collective pool of donor-advised funds. Now that’s doubled. We’re seeing a huge increase in generosity, and in people wanting to be savvy about their giving.  

Apex: Let’s talk about a few strategic ways that donors could consider giving to their favorite nonprofits. Any favorites?

Stephanie: Alright, let’s say you have Apple stock that’s gone way up in value. You could sell it, pay capital gains tax on the appreciation in value, and gift any cash left over. You’d get a normal charitable deduction for that cash gift.

Or, you could gift the appreciated stock outright to a charity, donor-advised fund, or foundation like ours (or all three!) and completely avoid paying capital gains tax on the appreciation. You get a charitable deduction for the full value of the Apple stock on the day it was donated, instead of the after-tax sale amount. The amount that would have gone to capital gains tax is now going to charity.

“For all of our complex assets, the process is a little different, but the concept is the same. Donors are usually completely avoiding capital gains tax while also getting a fair-market-value charitable deduction.” -Stephanie Hoff

Apex: What about real estate? With property values doing what they’re doing right now, is that a good way to consider giving?

Stephanie: Absolutely! If you have a lot of real estate, consider making a donation to charity instead of doing a 1031 Exchange. Real estate can be really fun because you can also donate a portion of a property! Or if you’re selling three properties, donate one and use the charitable deduction to reduce the taxes paid on the other property sales.

We have one family donating 10% of their real estate–basically a tithe, like we see in the Bible–by recording a deed that allocates a portion of the property ownership to WaterStone, which is a public 501(c)3. They’re avoiding tax on the gifted percentage of the property at the time of sale, while also receiving a charitable deduction for 10% of the value. Now, in order to set up something like that, you’ll need to get an appraisal to confirm the value of 10% of the property. You can donate half of it, all of it, whatever you want to do!

Apex: How does WaterStone handle gifts of real estate?

Stephanie: We do some due diligence. Obviously appraisals help with this, but we want to make sure there’s not too much risk involved with accepting a particular parcel. We also have a separate foundation set up just to receive real estate gifts. It remains on the chain of title forever, so this keeps things a little cleaner for the wider foundation. Smaller organizations can’t often take the risk of accepting real estate. The main goal is to liquidate the property, and most of the time we’re not managing the property long-term, but there are definitely exceptions to that! 

Apex: Ok, I have to know. What are the most unusual gifts you’ve ever accepted?

Stephanie: Oh, probably agriculture: almonds, avocados, corn. All they have to do is put WaterStone’s name–or any charity–on an account at the grainery/bin, and they can gift crops. They don’t get a charitable deduction for this, but they do get to decrease their taxable income for the year, while still claiming the expenses on Schedule F, which can be significant.  

Oh, and a tractor. One farmer used his John Deere rep to find another farmer in the area to buy the machine after it was gifted to us. We also do lots of real estate gifts into Charitable Remainder Trusts. This can often give the donor(s) more income every quarter/year than they would be able to get renting it out. This could be land, a rental property, a mobile home park, or even a McDonald’s lease!

Essentially a DAF is a pass-through entity. The donor sets up a Giving Fund, gifts the real estate to us in return for a tax deduction, and can then grant the sale proceeds to charity through their DAF whenever they’d like. They get the immediate deduction even if they don’t utilize the funds for years to come–plus they’re invested, so they grow tax-free in the meantime. 

Apex: What about nonprofits wanting to pursue some of these kinds of non-cash gifts? What would you recommend to them?

Stephanie:A WaterStone Charity-Advised Fund (CAF) is like the opposite of a DAF, where many people can gift to it, but there’s only one charity recipient that controls the disbursements to its organization. It’s almost like a mini-endowment, where the charity controls distributions. The charity–usually with a board overseeing the fund–can request $100,000 at a time, or the entire balance, or a disbursement when there’s a capital campaign or other specific event. A CAF can accept complex or appreciated gifts from many donors–just like a DAF. It’s low-cost, and easy to use. It is a great option for a nonprofit that’s not ready to launch a full endowment or foundation. 

Apex: Any gifts you absolutely won’t accept? 

Stephanie: We try to not say “no,” and we want giving to be the most tax-efficient for the donor as it can be. So we make recommendations on the best way to handle things. If a real estate property has 50%+ debt on it, it’s most likely not beneficial to donate it to charity. The tax savings are probably not worth it! There are also loss carry-forwards, so there are some instances where you want to recognize some capital gains in order to offset some loss that you have. 

Also look at adjusted gross income (AGI)-based limitations on charitable deductions. If you’re giving a privately-held business interest, you can only deduct up to 30% of your AGI. But you can carry it forward up to five more years, so you have six total years to realize the deduction. We’re working with a dental practice whose owner decided to donate the building instead of the actual business. Property is much easier to appraise than a company! 

Similarly to Apex, my first step is helping donors determine their goals. Are they wanting to save on taxes? Is there a building campaign they want to support right now? Are they creating a legacy that’ll play out over decades? Do they want to invest or meet a goal–like 10% of their estate or $1M–for their charitable giving? Our tactics really run the gamut. It all starts with listening for clues on their big-picture situation, age, needs, and goals. And then we go from there. 

Apex: What’s something you wish more people did or knew about giving? 

Stephanie: We want people to start asking these questions before they start selling assets. If we meet someone, and they’ve already sold a property or other assets, it’s too late to fund a charitable trust or DAF. But, they most likely own more assets! So, we teach them how to do it right next time. We can still help them get deductions to reduce their tax liability, but it just might not be quite as tax-efficient as the reverse would have been. 

“Say it with me: ‘Give first, and then sell!’” -Stephanie Hoff

About our Guest Contributor

Apex Legacy Consultants offer consulting packages and legacy planning support for people at every age and stage of life, and with any kind of estate–no matter how eclectic! We’d love to walk with you as you create a plan that fits your unique family, situation, and philanthropic goals.