Rich don't understand that gifting appreciated securities can mean savings. Instead of making cash gifts to charities, millions of wealthy Americans might be better off donating appreciated securities -- stocks, bonds or mutual funds -- to their favorite causes, says a new study out of Fidelity.

Boston-based Fidelity reckons "the additional median federal-tax savings from donating $10,000 in appreciated securities is $4,491," according to a summary of the report in question, Smart Giving: Maximizing Your Charitable Dollars Through Donations of Appreciated Stocks and Mutual Funds.

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"Although stocks and mutual funds have become a common investment vehicle for most Americans, only a small fraction ever factor in their investment gains for the purposes of charitable giving," says Fidelity senior researcher Steve Feinschreiber. "The added tax savings from donating appreciated securities over cash can be significant and applicable to many more Americans who already donate to charity."

Smart Giving looks at a hypothetical donation of $10,000. As a cash donation (and assuming a 28% personal income-tax rate) this would come to a federal tax savings of $2,800. But, where appreciated securities are in play, the $2,800 savings can grow as a result of avoiding capital-gains tax on the increase of the security's value since the donor purchased it.

That's worth considering in light of the fact that $123 billion of the $166 billion Americans donated in 2004 were cash gifts. Getting word out about the benefits of donating appreciated securities could do two things, says Feinschreiber: help gift givers save on taxes and "prompt individuals to increase their charitable giving."

Fidelity surveyed 500 households with at least $100,000 in investable assets which reported giving at least $1,000 to charity once in the past three years. Interestingly, more than half of these respondents -- 54% -- didn't understand how donating appreciated securities might benefit them even after the consequent reduction in capital gains was pointed out to them.

As things stood when Fidelity was conducting its survey, however, just 5% of those interviewed reported having donated securities. (The rate rises to 17% among those who donated $5,000 or more in the previous three years.) The main reasons given for not gifting securities was that people like to retain investments that are doing well (40%), consider the paperwork involved in donating securities a bit daunting (23%), and 20% considered the securities in question too low in value (or too numerous) for the kinds of donations they wanted to make.

These concerns can be addressed through vehicles such as donor advised funds or charitable gift account programs, according to Fidelity. Public charities often have donor-advised-fund programs that can handle securities donations simply and minimal paperwork. Not too many of those surveyed knew about these programs, however. -FWR

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