A charitable gift annuity
may be funded with securities. The capital gains tax on a
portion of the appreciation is prorated over the actuarial
life span of the donor/income beneficiary. A form, currently
Form 1099, showing the taxes owed on the annuity payment to
the donor/income beneficiary is sent in February each year.
Many donors who own highly appreciated securities with a
low rate of return are reluctant to sell, because of the capital
gains tax liability on the appreciated portion of the fair
market value. A gift of securities as the funding asset to
a charitable remainder
unitrust is a way to avoid incurring capital gains tax
liability on the initial gift transaction. The full value
of the gift is available for investment by the University
on the donor's behalf.
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To Provide Income
Using real estate to fund a charitable
remainder trust for the University can result in income
to the donor. A gift can be structured to provide fixed income,
variable income, or income that is linked to the earnings
of the asset used to fund the gift. The donor incurs no capital
gains tax liability on the appreciated portion of the fair
market value of the property, and enjoys a charitable tax
deduction in the year the gift is made. In instances of very
large gifts, the charitable tax deduction can be carried over
for up to five successive years after the year in which the
gift is made.
Retained Life Estate
A donor and spouse may decide to make a gift of their home
to the University and retain the right to live in the house
for their joint lifetimes. The donor receives a charitable
tax deduction in the year of the gift and retains rights and
duties of ownership for life.
Special Considerations
A gift of real estate is a potential benefit to both donor
and the University. To ensure that the gift transfer takes
place smoothly, special attention should be paid to the following
elements in the transfer of the property:
- Property should be readily salable and mortgage-free so
that the donor does not incur undue carrying expenses
- A qualified appraisal must be performed to substantiate
the gift amount
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Other assets which can be transferred to the University
to fund a charitable gift include, but are not limited to,
life insurance, stock in closely held businesses, tangible
personal property, and retirement plans. Special considerations
apply to each category.
Many individuals have life insurance policies that hold benefits they no longer need. If this applies to you, you may want to consider naming Boston University the beneficiary and assigning the University ownership of the policy. You may be entitled to an income tax deduction based on the value of the policy or premiums paid. The forms necessary to complete the gift are held by your life insurance company. In removing the life insurance policy from your estate, you may also reduce your estate taxes.
Stock in a closely held corporation can be used as a funding asset. This requires determining a fair market value of the stock. It may be necessary to call on the aid of an expert to achieve an accurate appraisal of value. In addition, care must be taken in transferring Mutual Funds as the donor may be subject to capital gains tax. Please contact opg@bu.edu with questions about funding a charitable gift with mutual funds.
Tangible personal property can be contributed
to fund a life income gift. This category of asset includes
furniture, rare books, automobiles, fine or antique jewelry,
paintings, and antiques. Since the property will be sold to
fund the gift vehicle, it is important to remember that the
donor's charitable tax deduction will be limited to the cost
basis of the object. Here again it is important for the donor
to obtain an accurate valuation of the item contributed.
Retirement plans, including IRAs, 401(k)
plans, Keogh plans, and others, can provide excellent "pockets"
from which to make charitable gifts. Many are surprised to
learn that heirs will receive relatively little of the balance
in such plans after estate, income, and other taxes are deducted.
Donors should check with their financial advisors and the
Office of Planned Giving to learn more about making
current and future gifts utilizing retirement assets in tax-favored
ways.
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