Andrew Crowell, vice chairman of D.A. Davidson & Co. Wealth Management in Great Falls, Mont., has a few words of warning for nonprofits: In most cases, liquidate assets the minute you get them.
His warning was learned the hard way by a church that is a client. The church received stock in a technology company that was worth $25,000. But instead of arriving in an electronic transfer like normal, the gift came in the form of the original stock certificate.
Someone inadvertently filed the piece of paper away and Crowell and church leaders did not know of its existence. Two years later, when it was unearthed, the stock had not only gone down, the company had gone bankrupt and the certificate was merely a useless piece of paper.
“Not only did the church lose the donation, the donor’s wishes were not carried out,” Crowell said.
Any nonprofit that occasionally takes in donations of highly appreciated securities should have a policy of liquidating them upon receipt, he said. If a nonprofit has an investment portfolio, it is unlikely a gift will fit into the portfolio or fulfill the organization’s goals.
Advisors need to know how to help institutions set up the proper procedures so they do not get burned like the church did, he said.
When assets are given to an individual or heir, scrutiny also is needed.
“People find all kinds of reasons not to sell appreciated assets they receive as a gift. It could have sentimental value because the stocks are from a company where a father or grandfather worked his entire life. The recipient may not want to pay capital gains taxes. There are lots of reasons,” Crowell said.
“But this should serve as a cautionary tale. If stocks have sentimental value, keep a small portion and sell the rest. The money can be invested in something that fits the risk profile, investment goals and time horizon of the recipient,” he said.
“Gift recipients come up with all kinds of reasons not to sell and then they think they have no choice except to keep the gift. But of course they have choices,” which an advisor can present to the gift holder, he added.