Turning Illiquid Assets into Charitable Giving

We often say that giving involves more than just dollars.  Time, talent, and other resources help maximize the impact of one’s giving.  Well it turns out there is also wide variety in the “dollars” one may give, in this case to donor advised funds.

Assets with little or no liquidity – from hedge funds and private equity to real estate and private company investments – have long been accepted by community foundations and present an appealing giving option for donors.

According to Robert Vogel, an Associate Principal at Lucas Capital Management and Secretary of CFNJ’s Board of Trustees, there are key financial benefits to donating illiquid assets.

“The financial advantage is that by donating now, there is a real and immediate reduction in current income taxes,” says Vogel.  “Some of the illiquid investments that I own may not provide cash out for three to five years.”

And a donor-advised fund is a particularly attractive recipient for these types of donations since, unlike donations of similar property to a private foundation, the measure of the charitable tax deduction is the fair market value of the property, rather than the donor’s basis.

Another financial benefit, according to Vogel, relates to the assets’ future value.

We can only estimate a current value for a longer term illiquid investment.  The future value will undoubtedly be above or below the current estimate.  In either case, there’s a benefit to the donor.  If the underlying asset increases in value, the donor will have access to request gifts for the full future value of the investment (i.e. give away a larger dollar amount than the value set at the time of donation).  If the asset declines in value, then the value of the tax deduction will be more than would be available if the asset were donated at the time it becomes liquid.

CFNJ has to date accepted illiquid assets ranging from LLCs, closely held stock, and real estate investments to more obscure items such as paintings, lithographs, South African Krugerrands, and even silver flatware.

So what has been Vogel’s experience giving illiquid assets?  He says the CFNJ process has been “seamless.”  CFNJ’s Chief Financial Officer walked him through all of the details and helped expedite the transfer.  The investment was included on his next quarterly statement and he has since given to worthy causes.

If you would like to donate illiquid assets to CFNJ or just to learn more, please call us at 973-267-5533.