When most people think about charitable giving, they imagine donating cash or writing a check. However, many donors hold substantial wealth in non-cash assets, such as privately held business interests, real estate, and stocks. These assets can be powerful tools for philanthropy, offering significant tax benefits while maximizing the impact of charitable giving.
By understanding complex and highly appreciated assets, donors can make more strategic and tax-efficient contributions to the causes they care about. In this blog post, we will explore what these assets are, how they can be donated to charity, and why Donor-Advised Funds (DAFs) are one of the most effective vehicles for handling such contributions.
What Are Complex Assets, and How Can They Be Donated to Charity?
Defining Complex Assets
Complex assets refer to non-cash assets that are often illiquid, privately held, or difficult to value. These can include:
Privately held business interests (C-corporation, S-corporation, LLCs, or partnerships)
Real estate (residential, commercial, or undeveloped land)
Restricted or pre-IPO stock
Hedge fund and private equity interests
Cryptocurrency
Tangible personal property (art, collectibles, intellectual property)
Unlike publicly traded securities, which can be sold easily, these assets require careful structuring to transfer ownership and maximize the donor’s tax benefits.
How Can Complex Assets Be Donated to Charity?
Donating complex assets involves liquidating or transferring ownership to a charitable entity. The process generally includes:
Asset Evaluation & Due Diligence
Assessing the asset’s fair market value and legal restrictions.
Determining tax implications and the charity’s ability to accept the donation.
Structuring the Donation
Direct donation to a nonprofit organization (if they can accept complex assets).
Contribution to a Donor-Advised Fund (DAF), which specializes in handling such assets.
Gifting to a Charitable Remainder Trust (CRT) or a Private Foundation.
Tax Benefits & Liquidation
If the charity or DAF sells the asset, the donor avoids capital gains tax, maximizing the donation’s value.
The donor receives a charitable deduction based on the fair market value of the asset.
By donating complex assets, individuals can unlock trapped wealth and turn it into philanthropic impact while reducing their tax burden.
Understanding Highly Appreciated Assets and Their Potential for Charitable Giving
What Are Highly Appreciated Assets?
Highly appreciated assets are investments that have significantly increased in value over time. Common examples include:
Publicly traded stocks and mutual funds
Real estate
Cryptocurrency
These assets create a unique opportunity for charitable giving because donors can give more while reducing their tax liability.
Why Donate Highly Appreciated Assets?
Avoid Capital Gains Tax
If a donor sells an appreciated asset, they typically owe capital gains tax on the increase in value.
By donating the asset directly to a charity or DAF, they eliminate the capital gains tax and allow the full value of the asset to benefit the charity.
Receive a Charitable Deduction
Donors can claim a charitable tax deduction for the full fair market value of the donated asset (subject to IRS limits).
Increase Charitable Impact
Instead of donating after-tax proceeds from a sale, donors give more by transferring the pre-tax value of the asset.
Example: Donating Stock vs. Selling Stock
Imagine an investor owns stock worth $100,000, which was originally purchased for $20,000. If they sell the stock, they may owe 20% capital gains tax on the $80,000 gain ($16,000 in taxes). This leaves them with only $84,000 to donate after taxes.
If they donate the stock directly, however:
No capital gains tax is paid.
The full $100,000 supports the charity.
The donor may receive a $100,000 tax deduction.
This tax-efficient strategy allows donors to give more while optimizing their financial benefits.
Why Donor-Advised Funds Are Ideal for Complex Asset Donations
What Is a Donor-Advised Fund (DAF)?
A Donor-Advised Fund (DAF) is a charitable giving account managed by a public charity. Donors contribute assets to the fund, receive an immediate tax deduction, and recommend grants to nonprofits over time.
Advantages of Using a DAF for Complex Assets
Simplifies the Donation Process
Many charities cannot accept complex assets directly.
UI Charitable specializes in handling these donations.
Maximizes Tax Benefits
Donors receive a tax deduction immediately upon contribution.
The DAF sells the asset tax-free, preserving its full value for charity.
Provides Flexibility in Giving
Funds can be invested and grow tax-free within the DAF.
Donors can distribute grants over time, rather than donating all at once.
Ensures Privacy and Strategic Giving
Unlike private foundations, DAFs do not have public tax filings that disclose donor names.
Donors can remain anonymous while supporting multiple charities.
Example: Donating Private Business Shares to a DAF
A business owner planning to sell their company donates a portion of their shares to a DAF before the sale. The DAF sells the shares without capital gains tax, and the business owner receives a charitable deduction for the fair market value. The proceeds remain in the DAF, allowing the donor to support charities over time.
Final Thoughts
Donating complex and highly appreciated assets is a strategic way to maximize charitable impact while reducing tax liability. By leveraging Donor-Advised Funds, individuals can simplify the process, unlock greater giving potential, and support the causes that matter most to them.
If you hold business interests, real estate, stocks, or other appreciated assets, consider working with a UI Charitable to explore tax-efficient charitable giving options.
Smart philanthropy starts with smart giving—unlock wealth for good.
