Noncash Assets Are the Next Donation Channel for Donors

Cash makes up less than 10% of the collective assets owned by Americans, which means nonprofits that solicit only cash gifts will be ignoring 90% of the total potential donation value. Stock has been and will continue to be an attractive investment asset for donors. Research has shown that 80% of affluent and high-net-worth individuals own appreciated assets, such as stocks, mutual funds, or bonds, but only 19% of those donors have contributed these types of assets to charity (Fidelity Charitable, 2016).

The Federal Reserve conducted a recent study that highlights the increase to 41.5% in the value of stocks held as a percentage of financial assets by US households, which represents a 70-year high (see Figure 5.1). (Other than stocks, financial assets also include bonds, cash, certificates of deposit, and bank deposits.)

The race to move wealth into the stock market is evident in the increasing number of brokerage accounts in the United States. In 2020, individual investors opened more than 10 million new brokerage accounts, which is an all-time record for a single year. The United States now sits with more than 100 million brokerage accounts and users, which represents an 11% increase from 2019.

The Top Brokerages by Accounts Opened

• Fidelity: 32.5 million accounts
• Vanguard: 30 million users
• Schwab: 29.6 million accounts
• Webull: 15 million users
• Robinhood: 13 million users
• Interactive Brokers: 1.1 million accounts

The demographic trends also support the noncash asset ownership trend for the next generation of giving (see Figure 5.2). Gen Z and millennials are expanding the types of assets in which they hold wealth. App downloads for brokerage firms, popular with these two demographic segments, are also seeing record levels, with the Robinhood Markets Inc. app reaching 3.29 million downloads in January 2021 alone (Statista, 2021).

Given the buy and hold nature of stock investments, donors' overall wealth held in stock generally increases over time. Between 2000 and 2019, the average annualized return of the S&P 500 Index was 8.87% (Anspach, 2022). After the initial purchase of stock, the appreciation over time creates capital gains that are taxed when the investor eventually sells the stock. But what happens if a donor with equity investments wants to give that appreciated stock to a nonprofit organization?

Stock Giving Is the Most Tax-Efficient Way to Give

US tax law generally categorizes stock held for investment as a capital asset. When an investor purchases a capital asset, including stock, the amount paid creates the cost basis for the investment. If the fair market value of the stock increases over time, the difference between the fair market value and the original cost basis, known as a capital gain, will be taxed when the stock is eventually sold.

There is magic to be made when donating appreciated stocks to nonprofit organizations. And tax-savvy donors are looking to the nonprofits they support to create a seamless fundraising channel to donate stock.

When donors give appreciated stock, the shares are transferred from the donors' brokerage account directly to the nonprofit's brokerage account. If the receiving organization is a qualified 501(c)3 charitable organization and the donor has held the stock for more than one year, the donor does not have to pay tax on the capital gain. In addition, the full value (or fair market value) of the donated stock is the amount of the charitable donation donors can claim on their individual income tax returns.

This is a huge win-win for both the donor and the nonprofit. In most cases, donors should not sell appreciated stock held over one year, pay capital gains tax, and then donate the remaining after-tax cash.

Supporting stock donations empowers donors to make larger gifts to nonprofits while also reducing their personal taxes. This is the outcome the US government has encouraged and why there is an incentive in the tax code for charitable stock giving.

Let's walk through the quick example shown in Figure 5.3 to highlight the benefits for a donor who plans to donate stock with $5,000 in appreciated value. If the donor sold the stock prior to donating it to the nonprofit, the donation would be $1,000 less (based on a 20% capital gain tax rate) than the fair market value today. By donating the stock directly, donors can give more to the nonprofits they care about.

So stock donations are the hot fundraising topic, but does stock giving translate to success for nonprofit organizations that do accept stock donations?

Stock Donations Fuel Nonprofit Fundraising

Nonprofits that receive stock donations see 55% higher fundraising growth than those that accept only cash (Russell, n.d.). Stock gifts tend to be larger than traditional donations, so the charities that accept stock donations often see a significant increase in their total giving within three months—without having to attract new donors (see Figure 5.4).

Russell James published a study after reviewing more than 1 million nonprofit tax returns. His aim was to look at how donors were funding their charitable gifts. James found that nonprofit organizations that consistently received stock gifts grew six times faster than those receiving only cash.

Stock Donations Are Significantly Larger Than Cash Donations

When nonprofits ask for cash, they are most likely asking for gifts from the donor's “operating budget” that pay for routine monthly expenses. Inherently, the reference point for cash gifts from a donor's operating budget makes a psychological difference in evaluating the size of a gift. The same gift may seem material when compared to other operating budget purchases, but less significant when compared with the total wealth when including noncash assets. At Overflow, we have seen the generosity of donors of the clients we work with by seeing our average stock donation size currently being more than $10,000 compared to the US average $128 online donation.

Donors who have never made a gift from noncash assets may simply never have considered giving from wealth-holding assets rather than giving from spare operating income. Findings from experimental research show that people are much more willing to make charitable donations from irregular, unearned rewards (such as might occur with an appreciated asset) than from operating income (Russell, n.d.). It's therefore more important than ever to educate those donors on the benefits of noncash assets enabling nonprofits to open a new channel for donations.

Given the growth in stock donations, the number of noncash donations is accelerating quickly with more than 50% of all charitable donations coming from noncash assets between 2017 to 2020 (Fidelity Charitable, 2016). Nonprofits that intentionally pursue noncash gifts can generate both immediate tax benefits for donors and long-term fundraising growth benefits for the organization.

Creating an Internal Process to Receive Stock Donations

The way nonprofits have historically received stock donations (if they accepted stock donations at all) looks something like this:

1. Donor, an early Google employee, excitedly contacts the nonprofit to donate Facebook stock. Unfortunately, most nonprofits respond with “no,” but for illustrative purposes, let's assume this nonprofit accepts stock.
2. The nonprofit tells the donor to navigate to the donor's brokerage website or call customer support to ask for a charitable stock transfer form. Unfortunately, the forms and requirements are unique to each brokerage and donation amount. The donor scrambles for a pen and paper to jot down the nonprofit's brokerage account number while on the phone.
3. Through a self-guided brokerage website tour, the donor finds the form and attempts to complete it.
4. The donor prints and signs the completed form and either puts it in an envelope to send via snail mail or faxes it to the brokerage.
5. The donor's brokerage receives the stock transfer form (finally) and reviews the information. Due to the stringent and constantly changing requirements, the forms are consistently filled out incorrectly, resulting in delays. The brokerage has to call the donor to resolve issues and often requires the donor to send a newly completed form to correct the errors.
6. Eventually, the donor brokerage initiates the transfer and the nonprofit receives the stock gift in its brokerage account from an “anonymous” donor.
7. The nonprofit then must decide whether to hold or liquidate the stock gift. It is critical to establish an investment policy and have a plan for receiving noncash assets.
8. The final step should be the nonprofit simply sends the generous donor a gift acknowledgment letter. However, it's not that simple with stock gifts. If the nonprofit receives an unprompted stock gift or has received multiple stock gifts, it has no clue which donor the gift belongs to. This results in a lost opportunity to engage with a high-value donor and creates additional time for the nonprofit team to generate a donor acknowledgment letter for the gift.

Phew… that was tiring.

The traditional method of accepting stock donations can be a slow, inaccurate, and painful process.

To receive a single stock gift, the nonprofit had to work with the donor individually to find the stock donation form, complete it, ensure the paperwork was correctly completed, track and record the gift, and send the donor acknowledgment letter. The complete lack of uniformity across brokerages in processing stock gifts manually prevents nonprofits from scaling this critical fundraising channel.

There is rarely a self-serve option for a donor to give stock. This creates additional pressure on the donor to sort out issues with their donation by having to call the broker and troubleshoot themselves. This can take months and can often be unsuccessful.

The worst part of this entire process is turning the positive experience of giving into a negative one for the donor. Donors want to be able to give quickly and efficiently while enjoying all the positive feelings and emotions that should come with being generous. A long and drawn-out manual process does not provide the elevated experience a donor wants and needs. According to research from Adrian Sageant, donors cite poor service or communication as the primary reason they stop giving to a nonprofit they have previously supported in the past (Planned Giving, n.d.).

With all the recent advances in technology, why are we still requiring a donor to print out and fax a form?

Why are we preventing donors from giving without needing to pick up the phone to call someone to initiate a gift?

A Simple and Modern Donation Channel

Nonprofit organizations seeking to receive stock donations should focus on providing a modern donor flow that supports frictionless giving to capture the donor's giving momentum.

The lightning-speed evolution of technology has transformed every aspect of our daily lives. Research now suggests that over 39% of donors contribute through an online giving platform (Fidelity Charitable, 2021). Just as the nonprofit space experienced a digital transformation in the way it accepted cash and credit donations, it's time we revolutionize the way we donate noncash assets. Donating stock has been stuck in the 20th century and it's more important than ever to bring it into the 21st century to meet the technological habits and needs of the next generation of donors. As such, enhancing the donor experience is critical to target a new segment.

Enhancing the donation flow caters to a critical new donor segment—millennials. Because millennials are tech-savvy, civic-oriented, and conscious of major societal trends across environmental, social, and economic issues, millennial donors are the fastest adopters of technology that makes everyday tasks in their daily lives instantaneous (Vogels, 2019). Providing a digital stock donation solution alongside existing cash donation flows enables millennials to think about stock giving in a whole new way.

A modern donation flow should be able to support the following:

1. Donors securely connect their brokerage account in seconds.
2. Donors' stock holdings are shown in a clear way to empower them to quickly select the stock they want to give.
3. The nonprofits' information is automatically captured and included in the giving flow.
4. Donor selects the shares, hits donate, digitally signs, and the gift is initiated with no further action.
5. The nonprofit receives the gift clearly tied to the donor, the critical donation information is automatically captured, a donor acknowledgment letter is generated, and the nonprofit simply has to review and send.

Providing a digital stock giving solution creates less friction for donors to give and increases the likelihood that donors will routinely give via stock. The automation enables nonprofits to save critical staff and volunteer time in processing and reporting received stock donations. This frees up time to focus on other initiatives that drive the nonprofit's mission forward.

Implementing modern stock donation technology is just the first step. And as I mentioned in Chapter 4, the best way to do this is to simply partner with a technology platform like Overflow that has already built the front-end and back-office tooling to enable this for your organization. Platforms like Overflow have teams that can collaborate with your IT or website admin to easily install the giving solution on your website as well as train key staff on how to manage the giving on the back end. On the front end, placement and consistency across all donation channels are critical for success in stock donations.

Placement of Stock Giving Options

One of the key factors in succeeding with stock fundraising is to ensure the stock giving option is placed alongside cash and credit giving buttons on the website. Donors, especially millennials and Gen Zers, are accustomed to minimal clicks to give cash, and the more time a potential donor has to spend digging through an “other ways to give” page, the less likely they are to donate.

Nonprofits eager to receive stock donations should place the “Donate Stock” button right next to the cash giving options.

There are three key focus areas for successful placement and donation flow:

• Prominence
  • The two or fewer touchpoints and clicks to arrive at the “Give Stock Button” is ideal.
• Clear language
  • Clear labeling to set expectations for the donor when the button is clicked. Clearly labeling the asset class for the button such as “Give Stock” is ideal.
• Education and awareness in the giving flow
  • Giving via stock or crypto is a new concept for many donors. Add a message such as “Maximize the impact of your donation and increase your tax savings by donating stock (crypto) directly.”

With the right placement, nonprofits can drastically increase stock giving conversion rates, triggering a new funding stream from the existing donor base. Providing education and awareness as part of the actual donation flow is important, but it is critical that stock-giving awareness occurs before a donor even enters the donation flow.

Donor Awareness and Education

The primary barrier for a high-value donor gifting stock is the lack of awareness that nonprofits have the technology and processes in place to accept stock. In addition, most donors are not aware that stock giving is the most tax-efficient way to give. The combination of (1) giving from different assets stored outside of a checking account used for everyday expenses and (2) the significant tax benefits stock giving provides creates a win-win proposition for donors.

Nonprofits should provide donors with content focused on stock donations in communications, on their website, and at major fundraising events. In a recent study conducted by Overflow, donors were asked what copy would entice them to donate stock. The survey choices included the following:

1. Increase your gift by up to 20% by giving stock instead of selling to donate cash
2. Maximize your gift with stock
3. Increase your impact with zero additional cost to you
4. Save more on taxes by gifting stock
5. Donate stock

The results are shown in Figure 5.5.

Increasing a donor's gift up to 20% by giving stock instead of cash was the clear winner. Using sample language like the following will be effective in creating a hook for the donor when evaluating a potential stock donation.

Do not sell stock in order to donate cash. Donating appreciated stock held for more than a year allows you to give more by potentially saving up to 20% on capital gain taxes.

There is a small percentage of donors who truly understand the tax benefits in a way that drives consistent stock donations. Therefore, it is crucial for nonprofits to provide high-level education on the potential tax benefits and highlight that stock is the most tax-efficient way to give. However, it is also important to encourage donors to be intentional in evaluating the overall tax impact of their charitable giving plan with a CPA, wealth manager, or TurboTax analysis. (Overflow is not a tax advisor. Please consult a tax professional for information about any potential tax implications associated with charitable giving.)

Stock giving tax education spans three major cornerstones: (1) tax efficiency, (2) ease of giving, and (3) maximizing impact.

Tax Efficiency

• Eager to make an outsized impact today? Donating stock is the most tax-efficient way to give.
• Excited that your stock portfolio has appreciated over the past few years? Make a larger impact by donating your appreciated stock directly to our organization through significant tax savings.

Ease of Giving

• Donating appreciated stock assets allows you to maximize your impact while saving more on taxes. Our organization makes it easy. Donate today.
• “Share a Share” through frictionless stock giving. Our organization supports frictionless stock giving to support the causes you care about.

Maximizing Impact

• Deepen your impact and increase your tax savings when donating stock directly to [Nonprofit].
• Don't want to wait until [event date] to support [Nonprofit]? Deepen your impact and increase your tax savings today when donating stock.

Consistency Across Platforms Elevates Awareness

Nonprofits can raise awareness for stock donations through an omnichannel (or multichannel) messaging approach. Nonprofits should engage with donors through marketing campaigns across social media accounts, email communications, newsletters, and content pieces. Consistent communication provides donors with a constant reminder that stock donations should be top of mind.

Following are some helpful tips in building awareness across these channels:

Email

• Any time a nonprofit includes an ask in an email or has a link to donate, make sure that link leads directly to a giving page that includes a stock donation option.
• Include taglines such as “Maximize your impact with stock donations.”
• Increase communications when the stock market has recently increased.

Social Media

• Build stock giving into the social media calendar to advertise stock giving.
• When making a fundraising request to followers, explicitly include stock giving as an option.
• Highlight tax savings donors have realized by donating stock.
• Include a direct giving link in the social media bio or “About Us” section.

Events

• Include a way for donors to buy tickets using stock donations.
• Highlight stock giving as an option on the “Call to Action” giving slide.
• Add a QR code on posters and flyers with a direct link to stock donations.

Content Pieces

• Add QR code that links to your stock giving page on each of these physical content pieces:
  • Brochures
  • Fliers
  • Schedules
  • Announcements

Now that we've taken a deep dive into stock and crypto giving and you've learned how to unlock net new generosity through these chapters, in Chapter 6 we will provide you seven master-level tactics to maximize giving overall.