WAYS TO GIVE
|Deferred Giving: Planning Ahead
Life Estate Agreements
Charitable Remainder Unitrust
Asset Retention Unitrust
Legacy Preserving Unitrust
With a little careful planning and the help of a knowledgeable gift planning officer, you can maximize your gifts in several creative ways. In the process, you can look after your own retirement needs, provide for your heirs and benefit Christian higher education at SPU. Explore the possibilities by calling the Office of Gift Planning at (206) 281-2702 or email us today.
Deferred Giving: The Benefits of Planning Ahead
Creative giving can actually increase your yearly income, lower your taxes and provide a major gift for Seattle Pacific University. Through gift annuities and charitable remainder unitrusts, for example, donors receive a life-long income source while protecting the principal from future creditors. These are attractive options for those who desire to give to Seattle Pacific, yet need an income.
The older you are, the better a gift annuity looks. Annuities offer a fixed, guaranteed income for life that is not subject to market fluctuations. The amount of income is computed according to percentages based on the donor's age: the higher the age, the higher the income. (Rates for men and women are the same.)
Gift annuities can be funded with cash, securities or real estate. SPU retains these funds in sufficient amounts to guarantee payments. In addition, the donor receives an immediate charitable deduction for the portion of the contribution that represents a gift to SPU.
Up to half of each payment is tax-free according to IRS rulings. This means that donors in lower tax brackets often earn a higher after-tax income from gift annuities than higher yielding, but fully taxable investments.
Payments can be diverted to any beneficiary during the donor's life. Some donors use annuities as a creative method of funding a loved one's education. Contact the SPU Office of Gift Planning to discuss your options.
Example: Carlton P., Seattle Pacific alumnus of 1947, wants some extra cash for living expenses, but his assets are tied up in a rental home he purchased 20 years ago. Because the home was purchased for $50,000 and is now worth $180,000, Carlton faces up to $19,500 of capital gains taxes if he sells it himself. He decides it's a good time to make the gift he'd been planning for SPU's missions program. From the Office of Gift Planning he learns that if he donates the home, a gift annuity can be purchased that will provide a 8.5 percent annual return on the land's $180,000 value. That means Carlton will have an extra $15,300 a year. He can even designate another beneficiary to receive lifetime payments, although this will affect the percentage of annual return. The University works closely with both Carlton and his family to assure that everyone is satisfied with the agreement. See Carlton P. Charitable Gift Annuity and Single Life Rate Table for additional information. Two lives rates can be found here.
With a deferred charitable gift annuity, the donor can choose to defer the start of the gift annuity payments until a future date. This can be a good option if you would like to receive the charitable deduction for establishing the gift annuity now, but don’t need the payments until later in your life, perhaps to supplement retirement income. You can either select a specific date to begin receiving the future payments at the time you establish the gift annuity, or you may keep the start date flexible and determine that later on as you get closer to retirement or your circumstances change. The older you are when you begin receiving the gift annuity payments, the larger your payments will be.
Charitable Remainder Unitrust
A charitable remainder untirust offers lifelong income and charitable deductions, just as a gift annuity does. One difference though, is that the rate of return on a gift annuity remains constant, while the unitrust is market-sensitive, providing a potential protection against inflation.
To establish a unitrust, an irrevocable donation of cash, securities or property is placed in a pool of assets managed by SPU's investment professionals. The donor and/or other beneficiary earn a fixed percentage of these assets for life. Because the fair market value of trust assets is reassessed each year, payments typically increase annually.
The charitable remainder unitrust can be adjusted to meet many situations. Payments can extend for the donor's life, or for two lives, or a fixed period of years. Sometimes the donor can receive lifetime payments and pass the yearly payment to an heir for up to 20 years. Donors may even opt to keep some of the original asset.
When a unitrust is established, the donor selects a permanent payment rate between 5 and 8 percent. Although a 5 percent rate offers a smaller initial payment, the donor's patience eventually pays off with larger payments and a greater gift to SPU because more growth has been reinvested in principal.
The donor receives a tax deduction for the probable benefit to the University after the Unitrust's payments end. This deduction is estimated according to IRS formulas.
Example: Renee and Greg, alums from the class of 1964, own some stock in a local coffee company that cost $10,000 when they purchased it 20 years ago and is now valued at $200,000. The stock pays no dividends and if they were to sell it and shift it to an income-producing investment, they would owe $28,500 in capital gains taxes. Instead, Renee and Greg decide to use the stock to fund a charitable remainder unitrust at SPU. They will receive annual lifetime payments of 5 percent of the trust’s value. In any year the investments do well, Renee and Greg’s payments increase, providing a nice hedge against inflation. Renee and Greg also avoid capital gain tax completely on the part of their contribution that represents the gift to SPU, and they realize the rest of the gain ratably over their lifetimes as part of their trust payments are taxed at the more favorable capital gain rate. An added benefit is Renee and Greg receive an immediate charitable income tax deduction of $72,088 for making this gift that will save them $18,022 in taxes in their 25% tax bracket. The Seattle Pacific Foundation serves as trustee of the trust, monitoring the professional investment of the trust’s assets, filing the trust’s tax returns and sending Renee and Greg their payments and annual tax statements. It gives Renee and Greg great satisfaction to know that at the end of their lifetimes, the trust assets are estimated to grow to approximately $433,906 and this amount will be used to establish an endowment at SPU in their family’s name that will fund student scholarships for generations to come. See example
A charitable remainder unitrust can be an ideal vehicle for retirement planning. Because principal is safe from capital gains tax, this is an excellent option for property that is highly appreciated. In some cases, savings from capital gains taxes mean an annual income equal to or greater than what could be achieved by investing after-tax funds.
Like an IRA or qualified retirement plan, this trust offers income tax exemptions and tax-free growth. Unlike these plans, the retirement unitrust has no required annual contribution or contribution limit. This allows you to build up resources in the early years and draw upon the interest later when you most need it.
If you choose, you may address family needs by appointing a beneficiary to receive the income for up to 20 years after your death. Eventually, the principal passes to the University, so this is an ideal way to be both charitable and practical.
Asset Retention Unitrust
This method of giving, also known as a charitable lead trust, is like a charitable remainder unitrust turned upside down. A trust is established in which the principal stays in the possession of the donor, and the University receives the interest payments for the life of the trust. The donor, then, is able to retain these assets in his/her estate while benefiting SPU.
The tax benefits of this unitrust, however, are fewer. Because the assets are still owned by the donor, charitable deductions are limited to the annual amount of interest payments to SPU. If a sale of appreciated property is used to establish an asset retention unitrust, there is no protection from capital gains taxes.
Assets can be managed by the donor if he/she prefers, or the University will provide this service.
Example: Barry S. owns investment property which he believes is about to decline in value. Now, he feels, is the time to sell. Barry will eventually pass these profits on to his family, but for now, he'd like to put them to work for SPU. After the sale, Barry sets up an asset retention trust with the University that produces a 6 percent payment to Seattle Pacific to establish a permanent endowed scholarship's in Barry's name. Meanwhile, the remaining growth is returned to the principal, causing his investment to increase with time. For every year of the trust, Barry also receives a charitable deduction for the annual payment SPU receives.
Many middle income parents face the frustration of needing financial aid for their son or daughter's college education. But they don't qualify. While cash resources may be insufficient to cover tuition, owned assets often place them outside the bounds of "need".
An educational unitrust offers a creative way to fund an education and improve one's financial aid eligibility while making a significant gift to Seattle Pacific. Here is how it works. Through a gift of appreciated stock or property or cash, the donor creates a special trust for perhaps five years with the student as beneficiary. The donor bypasses the capital gains tax and receives a significant charitable deduction on income taxes. (Grandparents also find this a practical way to help grandchildren and receive a charitable deduction.)
As beneficiary, the student receives regular payments to help fund books, tuition and housing costs. Although this income is taxable, the student is usually in a low tax bracket and pays little or no tax. If the parents are donors, they will reduce their assets and increase their chances of qualifying for financial aid.
Best of all, after their son/daughter graduates, the corpus of the trust will continue to benefit SPU students for many years to come.
Legacy Preserving Unitrust
Any donor's first concern must be for family. For this reason, Seattle Pacific's gift planning specialists encourage donors to involve family members in the planning process to assure that their needs are met.
One of the best vehicles for supporting SPU while remembering your family is the legacy preserving unitrust. Through this plan, the assets used to establish the trust are partially or completely replaced for your heirs.
Here's how it works. Any donation of property or cash to establish a unitrust creates a charitable deduction for the donor. Those tax savings can be used to create an irrevocable insurance trust with your heirs as beneficiaries. The insurance policy creates an eventual payment often equal to, or even larger than, the size of donation to the University. Your SPU gift planning officer can also help you avoid any gift tax in this transaction.
Example: Ed and Joyce K. own a duplex in a growing town. Purchased for $20,000 30 years ago, it's now appraised at $500,000. Ed and Joyce are newly retired, in good health and have three children. They would like to sell the property, but wish to avoid the 15 percent capital gains tax of $72,000. The couple have a long-term dream to fund a humanities scholarship for SPU, but they also want their children to be well provided for.
Joyce calls the Office of Gift Planning at Seattle Pacific. "If you transfer the property to a unitrust with SPU as beneficiary, you avoid most of the capital gains tax and gain a charitable deduction yielding $45,055 in actual tax savings," explains the gift planning officer. "Those savings can be used to establish an irrevocable insurance trust that will eventually make a substantial payment to your children to replace the value of the duplexe that is no longer in your estate. Meanwhile, you'll enjoy 5-percent payments which will grow over time as the unitrust principal increases".
Joyce passes the good news to Ed: They can fund the humanities scholarship, supplement their retirement income and leave a legacy for their children.