While charitable gifting is a broad category that requires further in-depth discussion, there are several charitable gifting strategies an investor can utilize to reduce the risk of an overconcentrated stock position.
The simplest strategy is for an investor to donate the overconcentrated stock position to a charity (or charities) of their choice. Not only will an investor generally receive the same exact tax deduction as if they donated cash, donating stock has the dual benefit of eliminating the capital gains tax that would be associated with selling the stock outright.
In our view, donating stock is a great way for an investor to both reduce their concentrated stock position and fulfill their charitable intentions.
Pairing this with a Donor-Advised Fund (DAF), a charitable investment account, can streamline the process of gifting stock and has the added benefit of allowing an investor to control the timing of both their tax deductions and their donations.
There are also different charitable trusts that may be appropriate for an investor with an overconcentrated stock position. These types of trusts, which include a Charitable Remainder Trust (CRT) and Charitable Lead Trust (CLT), allow an investor to better control and customize the charitable strategy that works best for them.
Charitable trusts come with material costs and added complexity, and we recommend you work with an experienced estate planning attorney and your financial advisor to determine the best choice for you.