by Timothy Stallings
As you know, giving back to your favorite school is a wonderful way to create a legacy and ensure that your school continues to thrive. Despite their best intentions, many donors fail to maximize their gift by failing to properly structure it. While you may not have the means to make a $100 million dollar donation like Phil Knight (Nike founder), you can make the most out of your donation by doing some simple planning.
Perhaps you have some real estate, or some stock, or maybe some other assets that have increased substantially in value, but are not producing an income stream. You would like to sell these assets to reallocate your holdings, but if you do, you will face significant capital gains tax.
In addition, you have always wanted to donate to your favorite school. You could simply sell the assets and give a cash donation, but is that the best way to maximize the benefits of your gift?
In this situation, you should consider utilizing a charitable remainder trust (CRT). A CRT allows you to donate to your favorite school AND receive the income from the donated assets for personal use during your lifetime. At your death, the balance of the trust is donated to your designated school.
How does it work you ask? First, you establish the CRT and transfer assets, such as real estate or highly appreciated stocks, to the trust. Next, the trustee (which can be you), sells the assets for the trust and reinvests the proceeds. You receive a specified amount of the income from the trust for the balance of your life. At your death, the assets are then given to your favorite school which you named in the trust.
You receive a variety of benefits if you utilize a CRT. First, you receive an income tax deduction for the donated assets. Second, you avoid capital gains tax on the assets that are donated. Lastly, since the assets are no longer part of your estate, you also avoid federal estate tax on them, if applicable.
Not only does your favorite school receive the financial benefit, but your estate will receive the numerous tax benefits. There are many variables which function to determine the tax benefits, including, but not limited to (1) the value of the donated assets, (2) the duration of the trust, (3) the type of trust (annuity or unitrust), (4) the charitable payout rate and (5) the federal discount rate imposed by IRC section 7520. It is important that you speak to your CPA and attorney to make sure that your tax benefits are maximized.
Additional Tax Considerations when Giving to a University
Generally speaking, gifts to universities through a CRT provide extensive tax benefits as explained above. However, additional tax considerations must be made when making a donation to a school. Keep in mind that a donor can deduct 100% of any cash gift (up to a maximum of 50% of his/her adjusted gross income on an annual basis and carry over any of the gift exceeding the annual 50% limit for the following 5 years). When giving securities, the amount of the gift can be deducted at a rate of 100%, but only up to 30% of such donee’s adjusted gross income (with an unlimited carryover).
In addition, some athletic departments require specific donations just to receive the opportunity to purchase tickets to events. At Ohio State, the opportunity to buy football tickets requires a minimum donation of $1,500 as of 2010. At Georgia, football season tickets are based on a point system. Points are acquired based on the amount of the donation. If you want a parking pass, you will need to make a $5,000 donation to Ohio State. The same privilege at Georgia requires a $2,500 donation. Please note that many universities require a similar donation in order to be eligible to purchase season tickets. It should be noted that only 80% of the amount of this type of donation is tax deductible.
As with any significant donation, you should always contact your attorney and CPA about the ramifications. Now keep on supporting those Buckeyes and Bulldogs!