Gifts That Provide Income
Some people want to support University of Puget Sound's liberal arts mission but feel they cannot donate income or assets they or their loved ones may need in the future. It is possible, however, to make a gift that also provides income to one or more designated recipients for life or a fixed period of years. Income-generating gifts are divided into two categories: those that pay a fixed amount and those that pay a variable income. Both types of gifts are irrevocable.
Fixed-income Gifts: The Steady Flow
Establishing a fixed income is especially important to retirees and others who are concerned about having sufficient financial resources to last a lifetime. A fixed-income gift can be set up as a charitable gift annuity or a charitable remainder annuity trust.
Gift Annuity
A gift annuity is a contract between you and University of Puget Sound. In exchange for the gift, the university pays one or more designated recipients (you, your spouse, and/or any other person) guaranteed lifetime income based on the amount of the gift and the payout rate in effect based on the ages of the income beneficiaries. The university employs the payout rates established by the American Council on Gift Annuities-the older the income recipient, the higher the payout rate. A portion of the income payment is tax free.
Charitable Remainder Annuity Trust
In a charitable remainder annuity trust, the donor places assets into a trust to be managed by a trustee. The trust stipulates the annual amount of income to be paid out to you and/or other recipients. Income payments can be established for one or two lifetimes, a fixed period of years, or both. Cash and long-term appreciated securities are appropriate assets to place in a charitable remainder annuity trust.
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Variable-Income Gifts: A Hedge Against Inflation
Charitable Remainder Unitrust
A charitable remainder unitrust is a smart gift approach for donors who are concerned with increasing income and guarding against the consequences of inflation. As with a charitable remainder annuity trust, assets are placed in a trust to be managed by a trustee; however, the income beneficiary receives an income equal to a fixed percentage of the trust's annual value. This provides some hedge against inflation, since as the value of the trust increases, so too does the payout.
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Tax Benefits of Life Income Gifts
Charitable Income Tax Deduction
Whether creating a charitable gift annuity or a charitable remainder trust, you will receive a current income tax deduction for a portion of the gift's fair market value.
Bypass Capital Gains Tax
Additionally, if you donate long-term appreciated assets (securities, closely held stock, real estate) to a charitable trust, you bypass the tax on the capital gain and the trust does not pay any capital gains tax when it sells the property. In the case of the gift annuity, you bypass tax on a portion of the gain, and the balance is spread over the income beneficiary's lifetime.
Tax-Free Growth
Charitable remainder trusts are tax-free entities with no income or capital gains tax on the principal. Consequently the trust principal can grow quickly.
Estate Tax Savings
Finally, donated assets are removed from your estate and therefore are not subject to estate taxes.
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How Does Puget Sound Benefit?
After all income payments have ceased, the remaining balance of the gift annuity or charitable remainder trust will pass to University of Puget Sound. It will be used to support the program designated at the time the gift is established.
Please visit www.ups.edu/giftplanning and select Calculate Your Benefits to see how establishing any of these types of gifts might benefit your loved ones and you. Call Director of Capital Giving Ted Smith at 253.278.3402 for more details.
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