Description of Charity

Boston University, chartered in 1869 by the Commonwealth of Massachusetts, is one of the largest independent institutions of higher education in the United States and is composed of some 15 constituent schools, colleges and programs.

Your Gift

A charitable remainder trust allows you to make a significant gift to Boston University now, while retaining the right for you and/or your designated beneficiary(ies) to receive a stream of payments over a specified period of time. In general, such specified period may be measured by reference to your life (or that of your designated beneficiary(ies)), may be a fixed period not to exceed 20 years, or may be the shorter of the two. The amount of payments that you and/or your designated beneficiary(ies) will receive during the payout period will depend on how you structure your gift and, to a greater or lesser extent depending on the terms of your gift, on the investment performance of the assets in your charitable remainder trust.

In establishing a charitable remainder trust, you may transfer cash, securities, and/or other property to a trustee who is responsible for investing and reinvesting these assets, together with any income therefrom, and for making distributions to you and/or your designated beneficiary(ies). The trustee can be Boston University, a bank or other institution or entity, or an individual (including in most circumstances yourself). When the trust terminates (that is, when it is no longer obligated to make distributions to you and/or your designated beneficiary(ies)), the property remaining in the trust will be distributed to Boston University for its general charitable purposes or to support a program you have designated. You may also specify that a portion of the remaining trust property be distributed to other charitable organizations.

There are two types of remainder trusts: unitrusts and annuity trusts, each of which is described briefly below.

Unitrusts. In general, a charitable remainder unitrust distributes at least annually to you and/or your designated beneficiary(ies) an amount equal to a fixed percentage of the net asset value of the trust, as determined on the first day of the taxable year. Under such an arrangement, although the percentage is fixed, the value on which it is determined varies from year to year. As a result, unitrust payments increase as the value of the trust assets increases and decreases as the value of the trust assets decreases. You specify at the time you create the trust the percentage of the trust's net asset value that is to be distributed each year; the minimum required percentage is 5 percent and the maximum is 50. The percentage may be further limited depending on the age(s) of the beneficiary(ies) and/or the duration of the trust. You may make additional contributions to a unitrust once it is established.

A unitrust may include a "net income" provision which requires the trustee to pay out the lesser of the trust's net income (defined in some cases to include capital gains) or the specified percentage of net asset value. A net income unitrust may also contain a "make-up" provision that provides that the trustee will "make up" deficiencies in the payments made to you or your designated beneficiary(ies) resulting from the operation of the net income limit. The make-up operates as follows: if you establish a net income unitrust with a gift of real estate, closely-held stock or other asset which generates no or a low level of income, the payments made to you or your beneficiary(ies) during the early years of the trust when such asset constitutes the trust's holdings will be minimal. A "deficiency" will arise, equal to the difference in the percentage amounts for those years and the income, if any, distributed. If such holdings are later sold and the assets purchased by reinvestment produce an income that exceeds the specified percentage of net asset value in later years, this surplus income will be used to make up the deficiency. If desired, a net income unitrust (with or without a make up provision) may "flip" to a fixed percentage payout trust following the occurrence of a specified event (e.g., the sale of an unmarketable asset, the death of the initial income beneficiary, or the passing of a specified date).

Annuity Trusts. An annuity trust differs from a unitrust in that its distributions are a fixed percentage of the net asset value of the trust's assets as of the date the trust is created. The payout must be equal to at least 5 percent and at most 50 percent of the initial net asset value, and it must not be so high that, actuarially, it is expected to exhaust or nearly exhaust the assets of the trust. The percentage may be further limited depending on the age(s) of the beneficiary(ies) and/or the duration of the trust. Following the creation and initial funding of an annuity trust, no additional contributions may be made to the trust.

Federal Tax Consequences

Income Tax. A charitable remainder trust provides you with an immediate income tax deduction based on the present value of Boston University's remainder interest in your charitable remainder trust's assets. The value of the remainder interest depends on your age (or the age of your beneficiary(ies)) on the date of funding of the trust or the duration of the trust, the type of trust created, the designated percentage of asset value on which payments to you and/or your beneficiary(ies) will be calculated, the frequency and timing of these payments, and the IRS discount rate in effect at the time.

If you use cash to fund your charitable remainder trust, you are permitted to claim the deduction generated by your contribution to the extent that it, together with other gifts to public charities made in cash during that taxable year, does not exceed 50 percent of your adjusted gross income for that year. If the value of your combined cash gifts is greater than 50 percent of your adjusted gross income, you can carry over the excess deduction to offset income for up to five years.

If you use appreciated securities or real estate (held by you for more than a year) to fund your charitable remainder trust, the value of your deduction is based on the full fair market value of such property on the date of contribution. The deduction generated by your contribution, when combined with all other charitable gifts of appreciated property, may not exceed 30 percent of your adjusted gross income for the year of contribution, with a five-year carryover for any excess.

A charitable remainder trust provides an additional income tax benefit when funded with appreciated assets. The remainder trust itself is a tax-exempt entity under federal tax laws. When appreciated assets are sold in the remainder trust, no capital gains tax is paid by the trust. The entire value of your contributed assets can, therefore, be put to work to generate annual distributions; there is no dilution based on asset sales and portfolio turnover.

The tax treatment of distributions made to you and/or your designated beneficiary(ies) will depend on the type of income earned by the trust. The trust is required to maintain an historic ledger of income earned and gains realized from year to year. Distributions are treated as consisting first of ordinary income (dividends and interest) earned by the trust, then short-term capital gains, then long-term capital gains, then tax-exempt interest and finally principal. Due to this historic method of accounting, it is not possible for you to donate low basis or no basis assets to a remainder trust, have the trustee sell these assets at a gain, and then receive a tax-exempt return from investment in municipal bonds. Tax-exempt income could only be provided once the capital gains generated by the sale have been distributed.

Gift and Estate Tax. If you name individuals other than yourself and your spouse as beneficiary(ies), you must reserve the right to revoke their interest. Otherwise, the value of that interest will be treated as a taxable gift immediately upon funding the trust. If your spouse is the only individual beneficiary (other than you), his or her interest will qualify automatically for the gift and estate tax marital deduction. If the beneficiary is your grandchild or a person who is treated as being two or more generations removed from you, the value of his or her interest may be subject to the generation-skipping transfer tax.

Acknowledgment. You will receive a separate acknowledgment from us setting forth the value of the income interest and the remainder interest in your trust in compliance with the charitable deduction substantiation rules.

Investment Information

Commingling. Unless otherwise agreed, if Boston University is named as the trustee of your remainder trust, all or part of your gift may be commingled, or pooled, for investment purposes, with Boston University's endowment funds, with the assets of other charitable remainder trusts, and/or with other charitable gifts made to Boston University. The purpose of commingling is to permit the collective management of Boston University's investment assets and the collective administration of its investment activities.

Commingling may have the effect of increasing the diversification of the investment program, achieving cost savings as fees are spread over a larger asset base, and enabling investments to be made that could not be made with a smaller investment fund. On the other hand, there is no assurance that commingling will increase investment returns over those otherwise available through separate investment. The decision of whether or not to commingle will be made from time to time by Boston University in its sole discretion and may take into account operational efficiencies of Boston University.

Operation of the Pool. In general, interests in the pool will be unitized and income, gain, deductions and losses of the pool will be allocated ratably among the units of the pool. Because a charitable remainder trust that earns so-called "unrelated business taxable income" (generally, income from leveraged investments and income from an active trade or business other than dividends, interest, gains, and rents) may lose its tax-exempt status, Boston University generally does not intend to commingle the assets of your charitable remainder trust in any pool that is expected to earn unrelated business taxable income and, if unrelated business taxable income is earned for any reason, no portion of such income will be allocated to your trust.

The number of units in the pool held by a particular charitable remainder trust will depend on both the value of the pool and the value of the assets being contributed to the pool by such trust on the day of contribution. Appropriate records will be kept to account for your charitable remainder trust's units in the investment pool. For federal income tax purposes, the pool will make such special allocations as are required to comply with the rules applicable to partnerships.

Investments. It is expected that the pool will invest in a diversified portfolio of assets which may include both debt and equity securities in such proportions as seem advisable from time to time in light of current market and economic conditions, as well as other real and personal property and cash to the extent Boston University deems advisable.

There are no specific limitations or restrictions on the types of investments that the pool may make, but Boston University, in managing the assets of the pool directly and/or in selecting the pool's professional investment managers, has an obligation to act in good faith and in a manner consistent with applicable law.

Investment in securities and other assets necessarily involves risk, which risk can be substantial, and it is expected that the value of the pool's assets will fluctuate over time. There can be no guarantee that the net asset value of your charitable remainder trust's units in the pool will not decline significantly, or that the trust will earn any particular level of return by investing in the pool. In the case of a charitable remainder unitrust, as noted above, the amount of distributions to you or your designated beneficiary(ies) will depend directly on the net asset value of your trust at the beginning of each year and, in certain cases, on the income earned by such trust. Distributions from both unitrusts and annuity trusts depend on the trust having sufficient assets to make such distributions at the time designated in the trust instrument. In the event of an inability of the trust to make the distributions contemplated by the terms of the trust or expected to be received by the beneficiary(ies), Boston University would have no obligation to make, nor would it be permitted to make, any distributions or other payments from Boston University's own assets.

Individual Information

The consequences of a charitable gift depend in significant measure on the individual donor's particular circumstances. The general discussion of charitable remainder trusts set forth above does not address every issue, nor does it take into consideration the type of assets you are contributing to your charitable remainder trust, the particular terms of your trust, your individual tax situation, or your estate and gift tax planning objectives. There are other factors, such as state and local taxes, that may be relevant to your gift. With respect to these considerations, as well as for a description of other ways to structure charitable gifts, you should consult with your tax and estate planning advisors.

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