Utilizing P&G Preferred Shares in Retirement For Charitable Giving

September 10, 2019

One issue many Procter & Gamble retirees run into is devising a strategy to continue gifting charitably after income from employment ceases. Oftentimes, gifting during working years simply comes from extra cash, but in retirement, cash is needed for living expenses. If you, like many P&G’ers, take advantage of the net unrealized appreciation opportunity for the preferred shares in the profit-sharing trust (PST) at retirement, there is a gifting strategy that may make more sense than gifting cash in retirement. Simply gifting the preferred shares has many potential benefits.

Most 501(c)(3) charitable organizations will accept stock in lieu of a cash gift. In addition, there are quite a few potential benefits to donating stock. Consider this scenario in which one retiree is gifting cash and the other is gifting stock:

Donor 1: In order to gift cash, Donor 1 needs to sell his/her preferred shares. This could result in a long- term capital gains tax, which can range as high as 23.8 percent at the federal level. The result? The charitable organization receives less than what the stock was worth, or the donor sells more preferred shares to accumulate the desired gift amount.

Donor 2: In this scenario, Donor 2 gifts the preferred shares directly to the charitable organization. The result? The long-term capital gains tax is avoided, and a donor is able to give the charity the desired gift amount without selling more stock.

If you’re unsure of the organization you want to support charitably or want to make significant charitable gifts over a period of time, consider using a donor advised fund (DAF). With a DAF, you make a larger charitable donation in one year, allowing you to have a larger impact on your tax return, but then spread the gifting of the donation out over several years

In addition, you can pass along any un-gifted assets in a DAF to a beneficiary, and he or she can gift the assets out over his or her lifetime.

Lumping several years’ worth of charitable deductions into one year rose to prominence with the passing of the Tax Cuts and Jobs Act of 2017. The new tax law capped the amount of state and local taxes that were deductible to $10,000. Consider a retiree who no longer carries a mortgage (thus, cannot deduct mortgage interest), his or her annual charitable gifts would need to be more than $14,400 to receive a tax deduction for any dollars gifted.

This is where a DAF enters the conversation. Consider the scenario below, in which a P&G retiree decides to gift five times their annual charitable amount ($10,000) in one tax year:

Table showing tax deductions with and without donor advised fund (DAF)

This use of the DAF has three main advantages:

  1. The lumping of charitable contributions causes you to breach the standard deduction, resulting in a large tax benefit.
  2. Gifting appreciated assets allows you to access the value of the stock that has large, embedded gains without personally realizing them.
  3. Lastly, this can be a tool used to hasten your diversification from P&G in a tax-free manner.

Once within the DAF, the P&G preferred shares (or any other appreciated asset) can be sold and reinvested with no taxes incurred. Any market growth can be gifted at any time during the life of the DAF.

If you have any questions on how the use of a DAF and gifting of P&G preferred shares may play into your retirement plans, please contact your team at Mariner Wealth Advisors, or Nate Kunkel and Brad Morgan directly.

The hypothetical information contained herein should not be construed as personalized investment, legal, tax or insurance advice and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy. There is no guarantee that the views and opinions expressed in this article will come to pass. Information contained in the material has been obtained from sources believed to be reliable, but not guaranteed. You should note that the materials are provided “as is” without any express or implied warranties.

For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website.

Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training. MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.

Contact Us