Gifting Shares - ETFs vs. Conventional Mutual Funds

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psteinx
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Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by psteinx » Fri Sep 14, 2018 1:29 pm

To what extent do ETFs and conventional mutual funds differ in the ease of gifting shares (with basis intact - i.e. without simply selling them first)?

My wife and I have a donor advised fund, and to date, that has been funded, I think, with shares (not ETF shares, but shares of companies). That's been pretty easy. The DAF is at Vanguard, the shares have mostly/entirely come from an account at Fido, but it's been pretty painless nonetheless. To my recollection, it's also been pretty easy to donate (company) shares directly to charities that support this.

But I'm a little worried about the possibility that conventional mutual fund shares may be more difficult to gift - to a DAF, to a non-DAF end-charity, or potentially as a more conventional gift (non charitable) to an individual. (EDIT - I'm far from certain that gifting will be the ultimate use of some or all of these funds, but I'd prefer flexibility in this regard.)

So, is using a regular mutual fund less flexible in this regard than an ETF? For what it's worth, the regular fund I'm primarily concerned about at the moment is one of the new Fidelity zero fee funds, which, if I understand right, they may be trying to be a bit more restrictive about than some other Fidelity funds...
Last edited by psteinx on Fri Sep 14, 2018 3:40 pm, edited 1 time in total.

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mhc
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by mhc » Fri Sep 14, 2018 2:58 pm

I gift mutual fund shares to my DAF every year. I do not see how it could be any easier. I assum MF, ETF, and stock shares coming from a brokerage account would all have equal ease.

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vineviz
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by vineviz » Fri Sep 14, 2018 3:14 pm

I'd wager that the Fidelity zero fee funds will NOT be transferrable: Fidelity has said (I think) they must be held by their custodian.
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Earl Lemongrab
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by Earl Lemongrab » Sat Sep 15, 2018 12:04 am

vineviz wrote:
Fri Sep 14, 2018 3:14 pm
I'd wager that the Fidelity zero fee funds will NOT be transferrable: Fidelity has said (I think) they must be held by their custodian.
The DAF is not a container for your funds. Whatever you donate is sold by the DAF. At Fidelity (and likely others) you then select an asset allocation but not the specific funds that implement that.
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vineviz
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by vineviz » Sat Sep 15, 2018 8:08 am

Earl Lemongrab wrote:
Sat Sep 15, 2018 12:04 am
vineviz wrote:
Fri Sep 14, 2018 3:14 pm
I'd wager that the Fidelity zero fee funds will NOT be transferrable: Fidelity has said (I think) they must be held by their custodian.
The DAF is not a container for your funds. Whatever you donate is sold by the DAF. At Fidelity (and likely others) you then select an asset allocation but not the specific funds that implement that.
Sure, but in order to avoid the capital gains tax you’d need to transfer your funds in kind from your taxable account to the DAF. OP said his DAF is at Vanguard which means have to sell the Fidelity zero fee funds himself, thereby incurring the tax himself.

Most other mutual funds and all ETFs would have a favorable tax disposition for the OP.
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Earl Lemongrab
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by Earl Lemongrab » Sat Sep 15, 2018 11:53 am

vineviz wrote:
Sat Sep 15, 2018 8:08 am
Sure, but in order to avoid the capital gains tax you’d need to transfer your funds in kind from your taxable account to the DAF. OP said his DAF is at Vanguard which means have to sell the Fidelity zero fee funds himself, thereby incurring the tax himself.
What's your basis for that assertion? Have you confirmed the DAFs can't accept the zero funds?
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vineviz
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by vineviz » Sat Sep 15, 2018 12:14 pm

Earl Lemongrab wrote:
Sat Sep 15, 2018 11:53 am
vineviz wrote:
Sat Sep 15, 2018 8:08 am
Sure, but in order to avoid the capital gains tax you’d need to transfer your funds in kind from your taxable account to the DAF. OP said his DAF is at Vanguard which means have to sell the Fidelity zero fee funds himself, thereby incurring the tax himself.
What's your basis for that assertion? Have you confirmed the DAFs can't accept the zero funds?
The restriction isn't with the DAF, it's with Fidelity: they've restricted the zero fee funds to "individual retail investors who purchase their shares through a Fidelity brokerage account". This is different from all other (AFAIK) Fidelity funds, at least according to the prospectuses that I looked at.

You could transfer shares of Fidelity Contrafund from Fidelity to a Vanguard DAF with no problem, for example, incurring no capital gains tax in the process. You could NOT do the same with Fidelity ZERO Total Market Index Fund.
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Earl Lemongrab
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by Earl Lemongrab » Sat Sep 15, 2018 12:25 pm

vineviz wrote:
Sat Sep 15, 2018 12:14 pm
The restriction isn't with the DAF, it's with Fidelity: they've restricted the zero fee funds to "individual retail investors who purchase their shares through a Fidelity brokerage account". This is different from all other (AFAIK) Fidelity funds, at least according to the prospectuses that I looked at.

You could transfer shares of Fidelity Contrafund from Fidelity to a Vanguard DAF with no problem, for example, incurring no capital gains tax in the process. You could NOT do the same with Fidelity ZERO Total Market Index Fund.
You're making this assumption. Have you verified it?
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vineviz
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by vineviz » Sat Sep 15, 2018 12:58 pm

Earl Lemongrab wrote:
Sat Sep 15, 2018 12:25 pm
vineviz wrote:
Sat Sep 15, 2018 12:14 pm
The restriction isn't with the DAF, it's with Fidelity: they've restricted the zero fee funds to "individual retail investors who purchase their shares through a Fidelity brokerage account". This is different from all other (AFAIK) Fidelity funds, at least according to the prospectuses that I looked at.

You could transfer shares of Fidelity Contrafund from Fidelity to a Vanguard DAF with no problem, for example, incurring no capital gains tax in the process. You could NOT do the same with Fidelity ZERO Total Market Index Fund.
You're making this assumption. Have you verified it?
I'm not assuming anything. I read the prospectus and quoted it.

If you've got evidence that I'm wrong, I'm open to evaluating it.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

tj
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by tj » Sat Sep 15, 2018 1:16 pm

vineviz wrote:
Sat Sep 15, 2018 12:58 pm
Earl Lemongrab wrote:
Sat Sep 15, 2018 12:25 pm
vineviz wrote:
Sat Sep 15, 2018 12:14 pm
The restriction isn't with the DAF, it's with Fidelity: they've restricted the zero fee funds to "individual retail investors who purchase their shares through a Fidelity brokerage account". This is different from all other (AFAIK) Fidelity funds, at least according to the prospectuses that I looked at.

You could transfer shares of Fidelity Contrafund from Fidelity to a Vanguard DAF with no problem, for example, incurring no capital gains tax in the process. You could NOT do the same with Fidelity ZERO Total Market Index Fund.
You're making this assumption. Have you verified it?
I'm not assuming anything. I read the prospectus and quoted it.

If you've got evidence that I'm wrong, I'm open to evaluating it.

Heh, I'm tempted to buy 1 share of it and donate it to my Fidelity DAF. I'd be shocked if it doesn't work. I can't believe they would place a "not donateable" restriction on these funds.

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Earl Lemongrab
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by Earl Lemongrab » Sat Sep 15, 2018 1:19 pm

vineviz wrote:
Sat Sep 15, 2018 12:58 pm
Earl Lemongrab wrote:
Sat Sep 15, 2018 12:25 pm
vineviz wrote:
Sat Sep 15, 2018 12:14 pm
The restriction isn't with the DAF, it's with Fidelity: they've restricted the zero fee funds to "individual retail investors who purchase their shares through a Fidelity brokerage account". This is different from all other (AFAIK) Fidelity funds, at least according to the prospectuses that I looked at.

You could transfer shares of Fidelity Contrafund from Fidelity to a Vanguard DAF with no problem, for example, incurring no capital gains tax in the process. You could NOT do the same with Fidelity ZERO Total Market Index Fund.
You're making this assumption. Have you verified it?
I'm not assuming anything. I read the prospectus and quoted it.

If you've got evidence that I'm wrong, I'm open to evaluating it.
You haven't produced any evidence that a non-Fidelity DAF can't accept and immediately sell the funds.
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Earl Lemongrab
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by Earl Lemongrab » Sat Sep 15, 2018 1:32 pm

I have placed a question in to Fidelity on the matter. I will relay whatever they reply.
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vineviz
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by vineviz » Sat Sep 15, 2018 1:35 pm

tj wrote:
Sat Sep 15, 2018 1:16 pm
Heh, I'm tempted to buy 1 share of it and donate it to my Fidelity DAF. I'd be shocked if it doesn't work. I can't believe they would place a "not donateable" restriction on these funds.
That'd be an interesting test, but still not relevant to the OP (whose DAF is at Vanguard, not Fidelity).
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Earl Lemongrab
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by Earl Lemongrab » Mon Sep 17, 2018 12:00 am

Here's the reply to my question from Fidelity:
With regards to the new zero-fee funds, these funds are currently only available for Fidelity self-directed accounts. At this time, the funds are not available for other investment companies. The shares can be donated to another eligible Fidelity account; however, not to Fidelity Charitable Giving accounts.
I would say that you were probably correct on that.
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Re: Gifting Shares - ETFs vs. Conventional Mutual Funds

Post by tj » Mon Sep 17, 2018 12:11 am

Interesting! I would stay away from them in taxable accounts (unless you never plan to donate appreciated shares) then, but in retirement accouts they are fine.

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