How to Gift Mutual Fund Shares to Charity
[This is useful for those who wish to donate money to a charity and at the same time avoid paying taxes on their appreciated investment holdings.]
Gifting stocks shares to a charity is relatively easy compared to gifting mutual fund shares. Yet most people don't own stocks directly, they own mutual funds. Gifting appreciated fund shares to a charity can help the charity financially while at the same time helping the donor tax-wise.
Here are some guidelines on how to gift shares of a mutual fund to a charity. It has been learned through years of problems. Depending on the broker you use some of these may be either easier than describe here or just plain impossible to do.
Issue Certificate. Have a certificate issued to the client, which can take as long as 6-8 weeks. Then the client, using a stock power, can sign the certificate over and deliver it to the charity. The charity will issue a receipt, the date of which will be the date of the gift. The charity can send the certificate to the mutual fund company or can use it to put the mutual fund shares into their own brokerage account. An advantage is that the client is able to physically deliver the certificate to the charity's office which may enhance the giving experience. Most no-load mutual fund companies don't issue certificates. Most load families do.
Transfer & Ship. Using a letter signed by client and sent to the broker, transfer the shares out of our brokerage account to an account held directly at the mutual fund company, which can take up to 6 weeks. Then instruct the mutual fund (guaranteed signature letter) to reregister the shares to the charity. Then the charity can request that the shares be sold. If the shares are institutional class shares, this method probably won't work because they must be held in a brokerage account. Also, a mutual fund will probably refuse to set up an account unless it meets their initial purchase amount minimum.
Open A Charity Account. Open a temporary brokerage account in the charity's name. The client instructs the broker by letter to transfer shares to this new account. Then the charity can sell the shares or transfer them to their brokerage account at their own firm. The shares can't be transferred directly from the client's account to the charity's account at another firm because mutual fund shares can be transferred between accounts with unlike registrations only if those accounts are at the same brokerage firm. A disadvantage is the paperwork involved for a temporary account that may exist for only a few days--the charity has to sign the forms too. (If it's believed that several clients will be doing this on a regular basis, it might be worth having such an account if it would remain (even while empty) in the broker's computer for use in the following year.
Charity's Firm Opens Client Account. The charity's brokerage firm opens a temporary account in our client's name. That firm, using their transfer form, has us transfer the shares to their account. In this method, the other firm is doing almost all of the work. Some firms may not want to do this. A disadvantage is that the client must now work with not one, but two brokerage firms who often have different methods of operation.
This article was originally written by Bob Bollinger, a friend and peer in Stillwater, Oklahoma. It has been slightly modified and used with permission.