Building a legacy with your single-stock holdings: how best to share the wealth.


If you have excess capital, it's time to consider estate planning and wealth transfer strategies. While there are many wealth transfer strategies available, a few lend themselves to a high concentration of single stock, especially stock that was obtained at a low cost.

Human nature often causes us to defer gifts, because no matter how much money we have, we're always afraid of running out. In many cases, charitable gifts are left as part of an estate plan that allots a certain amount of assets to the children and the remainder to charity. However, while testamentary gifts reduce your estate tax, you have forgone the opportunity to take advantage of income tax savings that result when you give during your lifetime.

Taking advantage of the income tax savings during your lifetime increases your legacy--allowing you to leave more to children or charity, or both. Thus, the first step in charitable planning is a core/excess analysis to calculate gifting capacity. In Display 13, we show the core/excess split for a 60-year-old couple with $20 million, at various spending levels. Funds that reside in excess capital are available for lifetime gifts; the next step is to determine the best charitable vehicles and investment strategy to maximize charitable value.

Donating stock that has appreciated greatly in value (low-basis stock, in tax terms) is one of the most tax-efficient ways to fund charitable contributions. In most cases, by giving the stock to charity you receive a tax deduction equal to the stock's value--and you avoid the capital gains tax that you would have paid had you sold the stock. Thus, shares of highly appreciated stock are generally the first choice for direct gifts to charity.

Display 13 Helping High-Net-Worth Donors Size Gifting Capacity $20 Million Portfolio 60% Stocks/40% Bonds Couple, Age 60 (*) ($ Millions) Spending $100 Spending $250 Spending $500 $3.7 $9.3 $1.5 $16.3 $10.7 $18.5 (*) Based on 95th percentile projections of Bernstein's Wealth Forecasting System; data do not represent past performance' and are not a promise of actual future results. Spending is assumed to increase with inflation. See note to Display 6, page 12, for information regarding asset allocation assumptions and mortality assumptions. See Notes on Wealth Forecasting System, page 44, for further details. Source: Society of Actuaries RP-2000 mortality tables and AllianccBcrnstein Note: Table made from bar graph. You can increase the benefits further by creating a private foundation (or using a donor-advised fund, discussed in more detail below) to accelerate the timing of your tax deduction and get the benefit of investing in a tax-advantaged environment. In this way you get even greater tax savings and provide more to the charitable cause.

To illustrate, let's say you have $1 million of a...

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