Whether you are a passionate college football fan, enthusiastic alumnus, or proud parent of a university graduate, you can support and invest in future generations by giving to a beloved educational institution through your estate planning.
Charitable giving not only makes the donor feel good; it also reinforces a family’s values and legacy and helps worthy organizations maintain financial stability. In addition, there can be tax benefits to an estate when charitable giving is part of the estate plan.
The Value of Charitable Bequests and Planned Giving
Nonprofits like colleges and universities appreciate recurring giving because it is beneficial to their cash flow, ability to accurately plan budgets, and their ongoing engagement with the community. Routine giving is often more impactful than a one-time gift in terms of allowing the donor to witness the value of their donation over a sustained period.
After seeing the impact of their donations, recurrent donors often go on to volunteer for the organization, support or join its board or staff, and attend fundraisers or events. This engagement furthers the organization’s mission and amplifies the impact of monetary gifts.
Although a university or college would appreciate a gift at any time of the year, there’s no reason to confine giving to the end of the year. In fact, charitable giving during “off-peak” months can bridge funding gaps and help consistently fund scholarships or research.
Benefits to You as a Donor
If you have an estate large enough that estate taxes may be owed after your death, you could create significant social capital through lifetime planning of charitable gifts.
With proper estate planning, you can reduce or eliminate wealth transfer taxes such as estate, gift, and generation skipping transfer taxes. Proper planning can allow you to realize favorable tax treatment for gifts made during your life and bequests made at your death under your Will, Revocable Living Trust, or beneficiary designations. There are a variety of charitable giving techniques that allow you to give to your favorite college or university without incurring a significant cost to you or your beneficiaries.
Even if your estate is not likely to be subject to estate tax, some charitable gift planning techniques allow you to turn a modest amount of your assets into a significant amount of social capital that either you or your designees can control.
Ways to Support Your Alma Mater with Estate Planning
Bequests made to the university through a Will or Revocable Living Trust.
A Will is a legally binding way to designate how your assets will be distributed upon your death. Your beloved educational institution can be named in a Will, which can be used alone or go hand in hand with a Revocable Living Trust.
Donating Retirement Plan Assets
Qualified charitable distributions (QCDs) are qualifying distributions made from a taxpayer’s qualifying tax-deferred retirement account directly to the recipient charity (in this case, your alma mater). A QCD counts towards the donor’s required minimum distribution (RMD) for the year of the contribution. However, you must be at least a certain minimum age (currently, 70 ½ years old) in order to make QCDs, and they must be made in a certain manner: generally, directly from the account to the charity. For example, you cannot withdraw funds from an IRA and then donate those funds to a charity and treat the donation as a QCD. You could also name the university as the beneficiary of any remaining retirement plan account assets you have, such as 401(k)s and IRAs, upon your death.
Gifting Property and Other Real Assets
While most people think of charitable giving in terms of making cash gifts, there is untapped potential in non-cash assets. An estimated 75% of high-net-worth families’ assets are held in noncash investments such as real estate, equities, and luxury assets, such as art, antiques, jewelry, cars, and collectibles. In addition, closely held business interests, such as C corporations, S corporations, LLCs, or LLPs, could be gifted.
Donor-advised funds (DAFs) have become a popular way to convert assets into charitable gifts to educational institutions while creating tax advantages for the donor. DAFs are professionally managed charitable giving accounts that allow donors to direct their gifts to nonprofit beneficiaries. Donors receive an immediate tax deduction for their irrevocable gifts to the DAF, but they can direct how the money is used and disbursed to a university foundation over time.
Charitable Remainder Trusts and Charitable Lead Annuity Trusts
A Charitable Remainder Trust or a Charitable Lead Trust allows you to leave a lasting charitable legacy through an Irrevocable Trust that benefits both the charitable organizations of your choice and your desired individual beneficiaries. A Charitable Remainder Trust is an income-tax-exempt trust that receives a contribution from the donor and then pays the donor or other non-charitable parties selected by the donor an annuity or unitrust amount for a period of time, which can be up to 20 years or for life, depending on various factors. At the end of the payment period, the assets remaining in the Charitable Remainder Trust will be distributed to the charity or charities selected by the donor. The donor can receive a significant income tax deduction when the Charitable Remainder Trust is initially funded, for the estimated value of the ultimate payout to charity. In addition, because the Charitable Remainder Trust is tax-exempt, it can sell contributed assets and recognize capital gains, as well as earning other income, and not pay income taxes. The non-charitable recipient of payments from the Charitable Remainder Trust will pay income taxes on a portion of each payment, but that income will retain the same character it would have had when it was earned by the trust if the trust had not been tax-exempt. This can allow a donor to transfer a highly appreciated asset to the trust, have the asset eventually sold, and then pay the capital gains taxes or ordinary income taxes on the income generated by that sale over many years, as the payments are received.
Charitable Lead Trusts (CLTs) provide for upfront annuity or unitrust payments to be made to one or more charitable organizations for a period of time. At the end of the payment term, the remaining trust assets will pass to your loved ones, either outright or in Trust. Depending on how the Charitable Lead Trust is structured, the creator may or may not receive an income tax deduction for the contribution to the trust, but the trust may receive an income tax deduction for its payments to charity.
Private Foundations and Supporting Organizations
Donors who wish to retain more control over how their charitable funds are used may wish to consider creating a private foundation or even a special type of public charity called a “supporting organization,” A private foundation or supporting organization can take the form of a non-profit corporation or a charitable trust. There are many rules that the donor and the organization must comply with, but when done carefully a private foundation or supporting organization can allow a donor and his or her family to maintain a high level of direct engagement with the charitable activities they wish to support.
These are just a few options for people with highly appreciated assets or high income to consider so that they can minimize the tax burden on their estate and show love and support for their alma mater. The Metro Atlanta-based estate planning attorneys at Morgan & DiSalvo would be pleased to meet with you to discuss options for gifting, charitable contributions, and other strategies for optimizing your estate planning from a tax standpoint. Please call (678) 720-0750 or email info@morgandisalvo.com.
