Donations of shares from your clients’ Betterment accounts typically will result in a decrease in value of one or more asset classes, depending on the shares our charitable donation selection algorithm selects to transfer. The algorithm prioritizes maximal tax benefit over the best allocation outcome, which can introduce allocation drift to your clients’ accounts. Because of this, our rebalancing algorithm, which checks accounts daily, may seek to rebalance your clients’ accounts after the donation completes. There are two things to be aware of:
- You can avoid a rebalance by making a deposit equal to the amount of your client’s donation. This has the same tax effect as if you didn’t make the deposit, but keeps your client’s allocation and goal on track. The resulting portfolio has a higher cost basis (i.e. lower embedded tax) than if your client didn’t make a donation from the account.
- If a rebalance does occur, it will use our TaxMin lot sorting algorithm, which sells losses before gains, followed by long term gains. It also always avoids short-term gains, and selects the lowest long term gains first. So if a rebalance does occur, the tax impact of it will be minimized.