A bequest may provide for a specific dollar gift, a percentage of your estate,
or specific asset(s) to be given to Tougaloo College in support of its various
programs and endeavors. A bequest may also be in the form of a gift of the remaining assets of one's estate. Bequests, like other gifts, can be designated for many purposes or given without restriction.
TESTAMENTARY LIFE-INCOME GIFTS
Charitable remainder trusts, charitable lead trusts, pooled income fund gifts
and charitable gift annuities all may be established through a donor's will. While such a gift will not provide tax savings during the donor's lifetime, a testamentary gift may reduce estate taxes, provide life-income for a loved one, and provide new estate planning options.
Individual Retirement Accounts (IRAs), tax-sheltered annuities, Keogh plans,
self employed plans (SEPs), 401(k), 403(b) and other qualified pension and
profit-sharing plans can also provide significant support for Tougaloo College. A donor needs to inform his retirement plan administrator that he wishes to name Tougaloo College as a beneficiary of the plan. The funds will usually pass to Tougaloo outside of probate and free of all taxes.
A donor may name Tougaloo College as a beneficiary of an existing life insurance
policy. The proceeds will usually pass to Tougaloo College outside of probate
and free of all taxes.
LIFE INCOME GIFTS
Life Income Gifts serve a dual purpose. They provide philanthropic support for
Tougaloo College while also providing both a charitable income tax deduction and
an income stream to the donor. Because they provide income benefits comparable
to or in some cases exceeding those that might be earned in ordinary
investments, life income gifts can help donors to make more significant gifts
than they might otherwise be able to make. In this sense, they are a "tax-wise" investment in the future of Tougaloo College.
There are several types of life income gifts, as follows.
Charitable Remainder Trusts
A Charitable Remainder Trust distributes income to a donor or other
beneficiaries for their lives or a specified term of years (a maximum of 20
years), with the balance of the trust assets available for Tougaloo College's
use at the end of the trust.
Charitable remainder trusts offer donors many opportunities to address specific
goals and situations. For example, a charitable remainder trust established for a term of years can assist in funding the costs of college. In addition, charitable remainder trusts are frequently used as a means of providing supplemental income during retirement, and can be especially attractive as a way to convert appreciated, low-yielding assets into a high-yielding diversified portfolio without incurring capital gains tax. A donor to a charitable remainder trust receives a partial charitable deduction equal to the value of the charitable remainder interest.
Charitable Remainder Trusts take two basic forms: the charitable remainder unitrust and the charitable remainder annuity trust.
Charitable Remainder Unitrust
A charitable remainder unitrust pays income based on a percentage of the fair market value of the trust assets as determined
annually. Typically, the "CRUT" will be revalued everyone January 1st. Because a unitrust pays a variable amount of income based on the annual market value of the trust assets, this form of charitable remainder trust may provide a hedge against inflation. If the value of the trust principal increases, so does the donor's income. There are a number of variations of charitable remainder unitrust, including " net income" unitrusts, " net income with make-up" unitrusts, and " flip" unitrusts. These variations offer a multitude of planning opportunities, depending on the specific situation.
Example: Mr. Jones, age 68, transfers appreciated securities that cost him
$100,000 and are now worth $500,000 to a unitrust with an annual payout rate of
six percent (6%). He is to receive payments for life. At his death, the unitrust
assets will create a scholarship endowment at Tougaloo. Mr. Jones' charitable
deduction is $236,820. Under the provisions of the trust agreement, Mr. Jones’ first annual payment will be $30,000, a significant portion of which may be taxed at the lower 20% capital gains tax rate. In Year 02, assuming an eight percent (8%) total annual investment return, the trust will have a principal balance of $102,000, and the payment will be $30,600. Assuming the same eight percent (8%) total return, the payment in Year 03 will be $31,212, and so on for life. Mr. Jones may also completely avoid the tax on the gain he would have incurred had he sold the property instead of donating it.
Charitable Remainder Annuity Trust
A charitable remainder annuity trust pays income based on a percentage of the initial value of the trust and the payout amount never changes. Since the annuity payment does not change during the term of the trust, an annuity trust provides the certainty of a fixed amount of income each year regardless of any fluctuations in the value of the trust assets.
Example: Mr. Brown owns appreciated securities that cost him $60,000 originally
and are now worth $100,000. He donates these securities to Tougaloo College to
establish a charitable remainder annuity trust, naming his wife, age 65, as the
lifetime beneficiary. The trust agreement provides for annual payments to Mrs.
Brown of $6,000, or six percent (6%) of the initial trust principal for life.
Mr. Brown qualifies for an income tax deduction of $49,744. In addition, he may
avoid the tax on the $40,000 appreciation that would have resulted had he sold
the securities. At Mrs. Brown's death, the trust principal will pass to Tougaloo
for the purpose he designated.
Pooled Income Funds
Overview: Tougaloo College maintains a pooled income fund. Just as a mutual fund combines investments, a pooled income fund combines gifts from many donors into a common investment pool. The pool is then invested and a pro-rata share of income earned by the pool is distributed to each donor and/or other income beneficiary.
Example: Mrs. Green, age 65, invests $10,000 cash in the
Tougaloo pooled income fund. For her investment, she will receive an annual
payout for her lifetime. The initial payout will be approximately $600 annually,
and the income tax deduction will be $3,902.
Charitable Lead Trust
A charitable lead trust is the mirror-image of a charitable remainder trust. The initial or "lead" interest is for the benefit of Tougaloo College. A donor can transfer assets to a charitable lead trust which distributes its income to Tougaloo for a term - measured either by someone's life or a chosen number of years. At the end of the trust term, the trust distributes the trust assets to designated non-charitable beneficiaries, usually children or grandchildren (or trusts for their benefit). By establishing a charitable lead trust, the donor is, in effect, "lending" the assets to Tougaloo College for the term of the trust. The benefits of a charitable lead trust include (a) the reduction or elimination of the transfer taxes (estate and/or gift taxes) imposed on the transfer of assets to children or others at the end of the trust, and (b) the ability to make a current gift to Tougaloo College without giving away your property.
Mr. Green contributes $1,000,000 to a 20-year charitable lead annuity trust to
benefit Tougaloo. The trust agreement stipulates that Tougaloo College is to
receive $70,000 in income annually for the purposes spelled out in the trust
agreement. At the end of the 20-year term, Mr. Green's son, Bill, is to receive
the trust principal. For gift tax purposes, only the remainder interest (what
the IRS estimates the value of the trust principal will be at the end of the
trust period) is subject to tax.
In this case, Treasury tables project the value of the remainder to be $222,540. The trust principal, however, actually grows to $2,597,230 [assuming a three percent (3%) annual net return], and this is what Bill receives. The difference between the value of the remainder interest under the Treasury tables and what is actually the trust value at the end of the trust term ($2,374,690) passes to Bill, free of transfer taxes. Mr. Green’s tax liability is based only on the projected value of the remainder interest ($222,540), and even this could be offset by Mr. Green's available estate and gift tax unified credit.