Consider Your College A Part Of Retirement Strategy

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BERLIN – Of all the gifts college gives, the greatest may be the freedom to discover and explore your passions, whatever they are. In fact, the very diversity of their offerings is one of the main things that make colleges such an attractive recipient when the time comes to bestow gifts of your own. By building a gift into your retirement strategy, you can satisfy your philanthropic goals while also expressing your gratitude to your alma mater.

“If you are passionate about the sciences, you can see to it that your money goes to creating a new component or addition to the science curriculum. You can also donate a scholarship or endow a chair, or contribute to a new auditorium or football stadium,” says David Ratcliffe, director of the Merrill Lynch Center for Philanthropy & Nonprofit Man-agementSM. “Donating to a university can play a significant role in your philanthropic objectives, and there are a number of flexible op-tions that can help further the university’s needs. …”

Yet for all their generosity, donors often overlook the importance of how they structure their gifts. In fact, 85 percent give cash (often in response to an annual pledge drive), even though giving other assets might hold significant advantages for both the donor and the university.

For example, giving shares of ap-preciated stock, rather than writing a check or selling the shares and do-nating the proceeds, can help in-vestors trim their tax obligations and possibly give significantly more than they thought possible.

William Eustis, a Merrill Lynch national philanthropic consultant, was serving as the head of fundraising at Providence College when a business owner sent the school a $100,000 cash donation. Before Eustis de-posited the check, he suggested that the donor ask his financial advisor about any appreciated stock in his portfolio. The search reveal-ed $380,000 in appreciated stock, which the donor de-cided to give instead. The school received a larger donation, and the donor avoided capital gains he would have incurred by selling the stock.

Trusts may also play an important role in giving as generously and efficiently as possible. A Charitable Remainder Trust (CRT) has the ad-vantage of providing a payment stream for the donor’s lifetime, with a generous donation going to the university when the trust expires. For example, a woman establishes a CRT to benefit her alma mater. She funds the trust with appreciated securities, deferring capital gains and lessening her in-come tax obligation.

With a Charitable Gift Annuity (CGA), the university commingles a donor’s contribution with those of other donors. The arrangement makes it possible for you to take an immediate tax deduction and receive an annuity (payment stream) from the university during your lifetime, or for others to receive a payment stream for their lifetimes. In exchange, the school keeps the re-mainder of the annuity upon your death. Payments can start as soon as the gift is made or can be deferred until a later date.

As with any philanthropic gift, the tax benefits of giving to a university do have limitations. For gifts of cash, donors can deduct a maximum of 50 percent of their adjusted gross income – which means that if your adjusted gross income is $500,000 and you give away $1.5 million in assets, you can deduct a maximum of $250,000 in the first year. How-ever, assuming that your adjusted gross income remained the same, you could also deduct $250,000 for five years going forward, for a total deduction over six years on the gift of $1.5 million.

The reasons for giving to your college are as varied as the ways to organize your gift. Ratcliffe says, “Once you work with your financial advisor to see how philanthropy fits into your overall financial strategy, you may see that university donations are a great way to give back.”

(The writer is a Merrill Lynch senior financial advisor. She can be reached at 410-213-9084.) 

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