Five Planned Giving Options
As you consider your financial and estate planning, please consider New Mexico Tech/ New Mexico School of Mines. Not only can Tech put your gift to good use, but a gift to Tech can also save you tax dollars through the charitable deduction and the avoidance of capital gains taxes. In fact, through reinvesting your assets through a charitable remainder unitrust or annuity trust, we can, in some cases, even increase your current income.
Here are five of the best planned giving options for your consideration.
CHARITABLE REMAINDER UNITRUSTS
A charitable remainder unitrust allows you to make a substantial gift to Tech and yet continue to receive income from the assets contributed. Your gift is administered separately as a trust. At the time the trust is created, you give instructions to the trustee to pay you or another designated beneficiary(ies) income for life. You may decide, within certain limitations, the rate of return you will receive on the trust’s assets. After the life income payments to you and/or the other designated beneficiary(ies) terminate, New Mexico Tech receives the remainder of the assets in the trust.
With the unitrust, you receive annually a fixed percentage of the fair market value of the trust’s assets, as those assets are revalued annually. Thus, the income paid out will vary from year to year, based upon the performance of the trust’s investments. The fixed percentage paid out must be at least 5%. Thus, if you contribute stock that pays a low dividend, the unitrust can sell it and reinvest in assets with a higher income yield – and that higher income can be passed along to you.
Upon the creation of a unitrust, you receive a substantial federal income tax charitable contribution deduction based upon the age of the beneficiary(ies), the rate of return specified in the trust, and other factors. The older the beneficiary(ies) the higher the charitable deduction.
Another benefit of the unitrust is that you generally incur no capital gain on the transfer of appreciated assets to fund the trust.
Example: You create a unitrust to pay you 6% each year and initially contribute $100,000 to the trust. During the first year, you will receive $6,000 from the trust. If the trust’s assets are values at $110,000 at the beginning of the second year, you will receive $6,600 ($110,000 X 6%) for the second year. The same calculation will be made each subsequent year. In addition to this income, you receive a substantial charitable deduction in the year you create the trust. Thus, your effective yield on the trust will be much higher than the actual 6% payout specified, because of the tax advantages.
CHARITABLE REMAINDER ANNUITY TRUSTS
Annuity trusts are very similar to unitrusts except that, with an annuity trust, the life income beneficiary(ies) receive annually a fixed dollar amount, rather than a fixed percentage of the assets in the trust. You may stipulate, for example, that you receive $6,000 (or some other fixed sum) each year as a result of setting up a $100,000 annuity trust. This form of trust is appropriate for those who prefer a fixed annual income, unaffected by changes in the stock market, interest rates, and the like.
As with the unitrust, the annuity trust provides a substantial federal income tax charitable contribution deduction. Also, you generally incur no capital gain on the transfer of appreciated assets to fund the trust.
Example: You establish an annuity trust with $100,000. You specify that you will receive annual income of $6,000 from the trust, with the payments to be made quarterly.
CHARITABLE LEAD TRUSTS
The creation of a charitable lead trust allows you to pass significant assets on to younger family members with little or no gift or estate tax payable to the government. Under this arrangement, you transfer assets to a trustee who would then make annual payments to us for a specified number of years, after which time the assets remaining in the trust would go to your children, grandchildren, or others. For individuals in high estate and gift tax brackets, this trust mean the opportunity to transfer substantial assets to younger generations, completely or significantly free of transfer taxes.
Example: With $1,000,000 in assets, you could create a charitable lead trust which would pay us 6% of the fair market value of the trust each year for 20 years. At the end of the 20-year period, the trust would terminate and the trust principal remaining (including any asset appreciation) could be distributed to your children or grandchildren. Under present IRS tables, there will be no transfer tax payable, assuming you have not used any of your unified credit.
GIFTS OF LIFE INSURANCE
Life insurance provides another excellent means for making a gift to us. This can be done either by purchasing a new life insurance policy or by contributing a policy which you currently own, but no longer need.
New Mexico Tech can be designated as the beneficiary of the policy, while you retain the right to change the beneficiary at a later date, and otherwise retain ownership of the policy. In this instance, no current federal income tax charitable deduction is available to you since you would still be the owner of the policy. However, at the time of your death, your estate would receive a charitable deduction when the proceeds of the policy are paid to New Mexico Tech.
To receive a current federal income tax deduction, you would need to designate New Mexico Tech as both the owner and the beneficiary of the life insurance policy. When such a gift is made the deduction will be approximately equal to the cash value of the policy at the time of the gift. Many donors decide to continue to pay the premiums on the policy after the gift is made, in which case the additional premium payments will be tax deductible next year.
GIFTS THROUGH YOUR WILL
If your estate is subject to the federal estate tax, a charitable bequest can save significant tax dollars. New Mexico Tech can be named as a beneficiary in your will in any one of a number of ways.
Outright bequest: You can specify an outright gift of cash, securities, real estate or tangible personal property. If you bequeath dollars, you may wish to bequeath a certain fraction or percentage of your estate to us, rather than a fixed sum; this serves as a hedge against both inflation and unforeseen shrinkage, and assures your heirs their proportionate share.
Residual bequest: A residual bequest provides that, after specific bequests are made to named individuals, the residue, or amount remaining in the estate, is left to New Mexico Tech.
Contingent bequest: A contingent bequest means that New Mexico Tech will receive certain assets only if a named individual does not survive you. For example, you could provide for Tech to receive a bequest only if your spouse does not survive you. Such a provision recognizes the need to provide first for the security of others.
Testamentary trust: Such a trust can provide income for another person or persons for life, with the principal ultimately passing to New Mexico Tech. In the alternative, you could designate that the income come to us for a certain number of years and the principal ultimately pass to family members or others.
Codicil: if you already have a valid, up-to-date will, you can have your attorney prepare a codicil to your will naming Tech as a beneficiary without having to rewrite your entire will.
FOR ADDITIONAL INFORMATION:
This essay summarizes some of the more common and familiar Planned Giving Options, but there are many others. Always check with your accountant, attorney, and tax advisor for additional information on how general rules apply to your particular situation.
New Mexico Tech appreciates your interest and support. Our Advancement personnel would be pleased to meet with you or provide you with additional information.
New Mexico Tech Office for Advancement
801 Leroy Place
Socorro, N.M. 87801