Planned Giving Opportunities
A brief guide to the tax advantages
Planned giving allows you to save on your taxes while making a charitable gift to New Mexico Tech/New Mexico School of Mines. Below are some of the most common and easy ways to do this.
GIFTS OF CASH
If you itemize, you can lower your income taxes simply by writing a check to New Mexico Tech.
Gifts of cash are fully deductible – up to a maximum of 50% of your adjusted gross income. For example, if your adjusted gross income for this year is $50,000, up to $25,000 of charitable gifts may be deducted this year. Any excess can generally be carried forward and deducted over as many as five subsequent years.
GIFTS OF STOCK
If you own stock, it is often more tax-wise to contribute stock than cash.
This is because a gift of appreciated stock generally offers a two-fold tax saving. First, you avoid paying any capital gains on the increase in value of the stock. Second, you receive an income tax deduction for the full fair market value of the stock at the time of the gift.
Example: if you purchased some stock many years ago for only $1000, and it is now worth $10,000, an outright gift of stock to Tech would result in a charitable contribution deduction of $10,000. In addition, there is no tax on the $9,000 of appreciation.
Make sure you have owned the stock for the “long-term” (generally more than one year) to qualify for these significant tax advantages.
Gifts of appreciated stock are fully deductible – up to a maximum of 30% of your adjusted gross income. For example, if your adjusted gross income for this year is $100,000, up to $30,000 of long-term appreciated stock and other property gifts may generally be deducted this year. Any excess can generally be carried forward and deducted over as many as five subsequent years.
Always check with your accountant or other tax advisor for the advantages (and possible drawbacks) of making a planned gift, based upon your particular circumstances.
GIFTS OF REAL ESTATE
A gift of real estate can also be tax-wise. A residence, vacation home, farm, acreage, or vacant lot may have so appreciated in value through the years that its sale would mean a sizeable capital gains tax. By making a gift of this property instead, you would avoid the capital gains tax and, and the same time, receive a charitable deduction for the full fair market value of the property.
It is also possible to make a gift of your house, farm, or vacation home so that you and your spouse can continue to use it for your lifetimes – while you receive a current income tax deduction.
Example: Mr. and Mrs. Smith own a vacation home in the mountains that they would like to continue using. Its fair market value is $100,000. By contributing the home to Tech now, but retaining the exclusive right to use it for the rest of their lifetimes, the Smiths are able to achieve a current income tax charitable contribution deduction of approximately $25,000. (The precise amount will depend upon their ages, the useful life of the house, and other factors.)
GIFTS OF LIFE INSURANCE
A gift of life insurance can provide a significant charitable deduction. You could purchase a new policy or donate a policy that you currently own but no longer need. To receive a deduction, designate us as both the owner and beneficiary of the life insurance policy. Check with your insurance agent for the details.
Example: Mr. Anderson owns a $100,000 life insurance policy with a current cash value of $34,582. By transferring the policy to us as the new owner and beneficiary, Mr. Anderson is able to receive a current charitable deduction of approximately $34,582. If Mr. Anderson decided to continue paying the premiums on the policy after the gift is made, these additional premium payments will be tax deductible each year.
LIFE INCOME GIFTS
Yes! It is possible to increase your income, receive a charitable contribution deduction, and avoid capital gains taxes.
If you own stock which is paying you low dividends, maybe 2% or 3%, a “life-income” gift may be appropriate for you. You could transfer the stock to New Mexico Tech and establish a “charitable remainder unitrust” or “charitable remainder annuity trust” that would provide you with a 5% or greater annual return. This income would be paid to you and/or a loved one for life, after which the assets would be distributed outright to Tech. Through such an arrangement, you would be increasing your income and making a meaningful (and tax-deductible) contribution to New Mexico Tech at the same time.
Example: Suppose Mrs. Jones, age 70, purchased some stock many years ago for $10,000 and that the stock is now worth $100,000. But she receives only $2,000 per year in dividends, or a 2% yield. By transferring the stock to a charitable remainder trust and specifying that she wanted a 6% return for life, she could:
1. Triple her annual income from that investment (from $2,000 to $6,000)
2. Avoid the capital gains taxes she would otherwise incur on a sale of the stock; and
3. Be entitled to a charitable contribution deduction of approximately $54,000. (The amount of the deduction depends upon the age of the donor, the rate of return specified in the trust, the size of the gift, and other factors).
CHARITABLE LEAD TRUSTS
Charitable lead trusts are essentially the reverse of the life income gifts described above. The income from the trust is first paid to us; the charity’s interest leads the way (hence the name of the trust).
Under this arrangement, you transfer assets to a trustee who makes payments to us for a specified number of years, after which time the assets are transferred to your heirs. The charitable trust allows you to pass assets on to your children and grandchildren either completely free or substantially free of all estate and gift taxes! It can make good sense for anyone in the top estate and gift tax brackets.
New Mexico Tech can be named as a beneficiary in your will in any one of a number of simple ways. An outright gift, either a designated dollar amount or percentage of your estate, could be specified. Tech could also be named as a remainder beneficiary to receive funds only after specific sums have been paid to individual beneficiaries. It is easy to add a codicil (ammendment) to your will, saving the expense of re-writing the will. See your attorney for this.
This essay summarizes some of the more common and familiar Planned Giving Options, but there are many other available methods of giving. Not all of the tax ramifications of each form of gift could be discussed, because some are specific to your situation.
Check with your attorney, accountant, or other tax advisor for additional information on how these general rules apply to your situation.
New Mexico Tech appreciates your interest and support. Our Advancement Office staff would be pleased to provide you with additional information on the advantages of planned giving.
New Mexico Tech Office for Advancement
801 Leroy Place
Socorro, N.M. 87801