Estates and Trust

Estates and Trusts

Gifts that Provide Income for Life and Tax Savings

Charitable Gift Annuity

The charitable gift annuity is similar to a commercial annuity, providing immediate fixed payments for life, but the funds remaining at the termination of the contract are distributed to the Ransom Center. A deferred charitable gift annuity provides an immediate and larger tax deduction and a higher rate of return by deferring the start of annuity payments to a future year you designate.

Sally Mitchell, 72, wants to make a stock gift to the Ransom Center but is concerned about giving up the dividend income from the stock. After speaking with her financial adviser, Mrs. Mitchell learns that charitable giving and retaining an income stream are not mutually exclusive. She establishes a charitable gift annuity funded with stock that she acquired several years earlier for $20,000, which has appreciated in value to $50,000. Mrs. Mitchell is happy with the results:

Mrs. Mitchell establishes a gift annuity valued at $50,000.
Her gift earns her a charitable tax deduction of $21,338.
At her 28 percent tax bracket, this deduction saves her $5,975.

Pooled Income Fund

The pooled income fund operates like a mutual fund and pays quarterly distributions for life. The fund combines gifts from many donors for investment purposes, shares the net income proportionately among them, and distributes the remainder to the Ransom Center upon the death of the surviving income recipients.

Charitable Remainder Trust

The charitable remainder trust converts significant appreciated assets into cash payments while eliminating capital gains taxes. This type of trust provides more planning flexibility than other options, and, if created through your will, is one of the best ways to roll over your qualified retirement plan assets to leave more for your heirs and charitable interests.

John and Lois Wilson, 61 and 59, want to make substantial future gifts to the Ransom Center but are concerned about avoiding capital gains tax on highly appreciated stock. They also would like to enhance their income during retirement. The Wilsons learn that a charitable remainder unitrust would enable them to avoid any capital gains tax on the contributed stock while increasing their income. They establish a trust with a 5 percent return, funded with stock valued at $500,000 (after an original investment of $100,000) and a 1.5 percent dividend payout rate. Here are the results:

The Wilsons establish a unitrust valued at $500,000.
Their gift earns them a charitable tax deduction of $153,205.
At their 39.6 percent tax bracket, this deduction saves them $60,669.
Avoidance of capital gains tax on $400,000 appreciation saves them $80,000.
A 5 percent unitrust payout yields a first-year payment* of $25,000.

(* Future years' payments will vary, based on five percent of the unitrust's market value at the beginning of each year.)

Bequests to the Ransom Center

A bequest is one of the most powerful and flexible expressions of your support. If you are considering naming the Ransom Center as a beneficiary of your will, we can provide sample language to you and your attorney to ensure that your intentions are properly carried out. A carefully planned bequest is an excellent way to leave a significant legacy while reducing and, in some situations, eliminating estate taxes.

Gifts of Life Insurance to Leverage Low Premiums

Life insurance can offer an attractive way to leverage low-premium payments to make a major gift to the Ransom Center. If you name the Center as the irrevocable beneficiary and owner of your policy, you obtain an immediate charitable tax deduction. You have the ability on your insurance beneficiary designation form to specify the Ransom Center as the unit on campus you wish to benefit.

A Qualified Retirement Plan for Financial Security

Qualified retirement plans are an excellent way to build financial security for retirement. Should you pass away, however, leaving these funds as part of your estate, your heirs could face double taxation—estate and income tax—spiraling up to 85 percent. You can avoid this penalty with proper planning.

Dr. Stuart Baker, 45, a new supporter of Ransom Center programs, designates his wife as primary beneficiary of his well-funded qualified retirement plan. He understands, however, that at least 70 percent of his retirement plan assets could be depleted by taxes if Mrs. Baker predeceases him and he leaves these assets to his children. His CPA advises Dr. Baker that he could name the Ransom Center as the secondary beneficiary and provide for his children through his estate plan with other assets that are not subject to double taxation. At Dr. Baker's death, if Mrs. Baker has predeceased him, his retirement plan assets will create an endowed graduate fellowship program at the Ransom Center.

Making a Tax-Wise Loan to the Ransom Center

By "lending" assets to the Ransom Center for a designated period of time through a charitable lead trust, you can pass those assets to your heirs and at the same time greatly reduce or eliminate federal estate and gift transfer taxes that could consume up to 55 percent of your legacy. This type of gift is particularly beneficial if the assets have a great potential to appreciate. Assets most commonly used to fund a lead trust are closely held stock, marketable securities, and partnership interests.

Remainder Interest in a Personal Residence or Farm

When you deed a remainder interest to the Ransom Center, you can continue to live in your primary residence, vacation home, or farm for the rest of your life. The property passes to the Ransom Center after your lifetime. At the time of the gift, you will receive a charitable income tax deduction based on the market value of the property and your age. You may designate the Ransom Center to receive the proceeds from your property after your lifetime.

Outright Gifts of Real or Personal Property

For a gift of real estate you have held for one year or more, you may take a charitable income tax deduction of the fair market value of the donated property—up to 30 percent of your adjusted gross income in the year of the gift—and carry forward any excess deduction for up to five additional years. Outright donations of assets such as equipment, farm property, closely held stock, and many other forms of property can also result in a substantial deduction.

For more information on estates and trusts please contact Lisa Avra at (512) 471-5174 or lisaavra@mail.utexas.edu.

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