The Office of Development & Alumni Relations endeavors to maximize a donor’s contribution and tax-relief potential and present ways to make a larger gift than thought possible. It facilitates the use of assets such as stocks and securities, life insurance, retirement accounts, a personal will, and property such as artwork and rare books as gift options. Planned Giving can also help secure increased tax benefits and/or supplementary income. Benefits include earned life income, and the reduction of capital gains income and estate taxes. Below are some of the most popular methods for making the most of your contribution.
Bequests are the most common and simplest form of planned gift that Howard University School of Law has been fortunate to receive. A bequest is a gift - large or small - that is made through a donor’s will. Individuals may include Howard University School of Law in their wills by naming the School for a specific dollar amount (called a “legacy”), a specific asset, or a percent share of their estate. Donors can also name the School as the residual beneficiary of their estates after the payment of bequests to others.
Donors do not owe any federal estate tax on the amount of the bequest. Many states allow full inheritance tax deductions as well.
Charitable lead trusts are most appealing to wealthy donors who want to pass appreciated assets to their heirs at a reduced gift or estate tax cost. Charitable lead trusts allow Howard to receive income from the donor’s assets for a specified time, after which time the asset is returned to the donor or to the donor’s heirs who do not have to pay any additional taxes.
If your children or grandchildren will be the recipients of the trust assets, you may pay a gift tax on the asset when it is placed into the trust, but the gift tax will be reduced by the charitable value of the trust income paid to Howard University School of Law. Once the asset is placed into the trust, it can grow tax-free.
Assets appropriate for a charitable lead trust are bonds, listed securities, closely held stock and income-producing real estate.
Two basic types of charitable remainder trusts allow you to qualify for federal tax benefits and continue to receive income from your stock, cash or other assets. You give your assets to a trust and those assets are invested, producing income for you - or another beneficiary - for either a fixed period of time or for your lifetime. You may claim a tax deduction for the estimated portion of the assets that will ultimately come to Howard University School of Law. At the end of the trust period, the School of Law keeps all remaining assets.
The two types of remainder trusts are unitrusts and annuity trusts.
Under a unitrust, the donor receives one or more yearly payments equaling a fixed percentage of the value of the asset, which is assessed each year. As the value of the asset grows, so does your income. Under a net income unitrust, the donor receives only the income earned by the trust, even if the trust earns less than the payout rate. However, the trust can be set up to include a “make-up provision,” which allows the donor to make up the lost income, provided the trust earns more than the payout rate in future years. You can also invest the principal of the trust in securities that pay tax-exempt income.
Under an annuity trust, the donor receives a yearly fixed payment equaling at least five percent of the value of the asset at the time the deferred giving agreement was signed. People who want a predictable income each year like this option. Donors who contribute charitable remainder trusts may receive income tax deductions and escape capital gains taxes. Many donors find the trusts an appealing way to prepare for retirement. The assets can be invested to earn a lower rate of return when the donor is younger and then shifted to earn a higher rate of return, providing more income during the donor’s later years.
Shifting Income for College Expenses
A charitable remainder trust allows you to make a gift to the School of Law, receiving an immediate income tax deduction and provide an annual income for a child or grandchild to help pay for college. Your beneficiary will receive a fixed or variable payment each year and you gain an immediate tax savings.
The gift annuity agreement provides donors who give cash, securities, real estate or personal property fixed annual payments for a specified period of time, usually for life. With a deferred gift annuity, the annual payments do not start when you make the gift, but begin at a later time specified by you.
Gift annuities are attractive if you want to receive income from assets that have risen sharply in value, such as cash or stocks. In return for gifts of such assets, you are guaranteed a fixed annual income for the rest of your live and you avoid capital gains tax. You also get an income tax break on a portion of the earnings from an annuity; the exact amount depends on your age.
You can make a gift of a whole or universal life insurance policy by naming Howard University School of Law the irrevocable owner and beneficiary of the policy. In fact, there are several attractive ways to use life insurance as a charitable gift.
You can contribute a paid-up policy that you no longer need. This does not diminish your current income at all and may provide you with an income tax deduction for the replacement value of the policy. Your gift may also save you considerable estate taxes.
You can give a policy that is not paid up as well and take a deduction for the “cash surrender value” of the policy. You would continue to make gifts to Howard to pay the premiums and these gifts would be deductible as charitable contributions.
You could fund a Charitable Remainder Unitrust for your spouse with life insurance. The premium payments would be partially tax deductible, and the trust will provide income for your spouse after your death.
You can give appreciated property to Howard and use the income tax savings to purchase life insurance for your family.