BERLIN – College was a place to learn and a time to grow. As the years pass, it becomes easier to realize what those years provided us and it’s only natural to want to return the favor.
From creating scholarship funds to supporting teams or making cash donations to a school’s general fund, supporting your alma mater financially can be a particularly rewarding component of your philanthropic activities.
Historically, gifts from individual alumni provide the bulk of charitable support. Without individual gifts, it would be impossible for universities to sponsor a full range of activities. This is particularly true at public universities, where donations fill the gap left by state funding cutbacks.
Eighty-five percent of donors give cash, often in direct response to pledge drives. However, giving other assets may hold significant advantages for both alumnus and institution. For example, donating shares of appreciated stock, rather than selling the shares and then writing a check, allows you to give more and can help trim your tax obligations. Think of it this way: If you sell stock that has appreciated by $100,000 and then donate the cash from the sale, you would have to pay at least $15,000 capital gains tax and be able to deduct only the after-tax amount you contributed. On the other hand, if you give the stock itself directly, you can deduct the full market value of the shares without paying gains tax. Plus, the school receives a larger donation.
The same holds true for donations of other appreciated assets, such as artwork and historical papers, as long as you meet the Internal Revenue Service’s requirement for a rigorous professional evaluation of the gift’s market value.
Different types of trusts can also play an important role in generous and efficient gifting. A Charitable Remainder Trust (CRT) provides a payment stream for the donor’s or beneficiary’s lifetime with the balance of the assets going to the college when the trust expires. For instance, if you establish a CRT to benefit your alma mater and fund it with appreciated securities, capital gains are deferred and your income tax obligation lessened. You can choose to set a term for the trust of up to 20 years or for your lifetime. The trust will then make payments to you. When the trust terminates, the remaining principal goes to the school.
Similarly, a Charitable Lead Trust (CLT) provides the college income for the slated number of years, after which the remaining assets pass to the donor’s beneficiary. These trusts are ideal vehicles for donating highly appreciated assets valued at $250,000 or more.
Lastly, a Charitable Gift Annuity (CGA) makes it possible for you to receive an annuity with the balance paid to the school upon death. With a CGA, the university commingles your donation with other contributions. Payments can start when you make the gift, or be deferred to a later date.
Work with your financial advisor to see which gifting option works best with your current financial picture, future strategy and philanthropic goals. Of course you should also discuss your personal tax considerations with your accountant or tax attorney. By taking the right steps to maximize your donation, you can ensure that your generosity supports your alma mater as effectively as possible.
(The writer is a Merrill Lynch Senior Financial Advisor. She can be reached at 410-208-9084.)