The announcement of the Bayer-Monsanto transaction gives shareholders a great opportunity to think about taxes and charitable planning options.
Shareholders have seen a $10-$15/share bump since May, and the current price (~ $107) still is below the sale price ($128). Given that run in price (and projected run), it’s a good stock to consider using for charitable planning.
Generally, you can give a stock to charity and deduct its full fair market value as long as you have held the stock for more than a year. If you give away the stock before the deal is “final,” you get a full deduction and do not have to recognize gain. But if you make the gift after a final deal but before it officially closes, you are treated as having sold the stock (and recognizing the gain). You must then contribute the proceeds, eliminating much of the tax benefit of the gift.
Thus, it’s optimal to give away the stock as close to — but still before — the sale is “final.” A good rule of thumb is that a sale is “final” when the closing is a foregone conclusion and there is no substantial contingency to closing. At this point, the companies must still clear significant regulatory hurdles to their joinder, including antitrust actions in at least two countries. As evidence that this is a real concern, Bayer threw in a $2 billion breakup fee if the deal falls apart on antitrust grounds.
The fact that the stock is trading well below the sale price indicates that the market has some skepticism about closing. Thus, you still have time to make a gift. And even if the sale doesn’t occur, you may have capitalized on a high point in the price.
There are a variety of ways to make gifts with Monsanto stock, including outright (to a public charity, a donor advised fund or a private foundation), to a charitable remainder trust, or to a charitable lead trust.