Life Income Gifts
Life income gifts provide donors with the flexibility to support Massachusetts College of Pharmacy and Health Sciences and to receive income while also taking advantage of specific tax-saving benefits, including potential avoidance of capital gains tax on gifts of long-term appreciated property. Life income gifts enable an individual not only to make a significant gift but also retain the income from the gift during his or her lifetime.
Several types of life income gifts provide flexibility to create an arrangement that best fits a donor’s financial needs. A life income gift can be structured to pay income to the donor and another person or persons. The gift can pay a fixed or variable income; may include tax-free income in whole or part; and arrangements for income payments can be scheduled to commence immediately or at some future date, such as a projected retirement date. A donor may make a life income gift as part of his or her overall estate planning which also may include making a charitable bequest. In other instances, a life income gift is made separately.
Charitable Gift Annuity
A Charitable Gift Annuity, the simplest of the life income programs, provides fixed income with the payout rate determined by the beneficiary’s age. The gift annuity is a contact between the donor and the Massachusetts College of Pharmacy and Health Sciences. In exchange for the transfer of cash, securities or real estate, the College agrees to pay the donor and/or another beneficiary a fixed dollar amount annually for life. The size of payments is based upon the age of the beneficiaries: the older the beneficiary, the larger the payments. A portion of the gift is tax deductible and some of the income received is tax-free or taxed at capital-gains rates.
A gift annuity may be funded with a minimum gift of $25,000 and can be funded with cash or appreciated securities. These plans frequently appeal to individuals over the age of 70. Donors who use long-term, appreciated securities to purchase the annuity can spread the capital gains tax reportable from the sale of the securities over the donor’s life expectancy.
Charitable Remainder Trust
The Charitable Remainder Trust enables a donor wishing to contribute to the future of the College to retain, and often increase, current income. It is a flexible planning tool that can achieve both financial and charitable giving goals. For example, in addition to ensuring significant financial support for the College, a Charitable Remainder Trust can be useful in planning for retirement, or converting from growth assets to income-producing assets without incurring a tax on the capital gain.
A donor makes an irrevocable transfer of property, cash or other assets, to a trust. The donor retains a right to receive income from the property in trust or designates another person or persons to receive the income. The income can be either taxable or tax-exempt, depending upon the nature of the income earned by the trust and the type of assets transferred to the trust. The donor receives a partial income tax charitable deduction in the year of the gift. If the gift is made with appreciated, long-term property, the donor incurs no immediate capital gains tax on the transfer to and subsequent sale of the assets by the trust. When the trust term ends, the property remaining in the trust becomes a gift to the College.
Because the Charitable Remainder Trust is invested separately and managed professionally, it is especially effective in meeting the special needs of an individual donor. It is a gift arrangement that offers flexibility in a number of ways:
- The donor selects the trustee (or can choose to be the trustee)
- The donor decides the payment amount (stated as a percentage of the gift amount), whether the payment will be variable or fixed and the frequency and timing of payments.
- The trust may be set up for a term of years, or for the life or lives of persons living when the trust is created. The investment strategy and taxable character of the income can be tailored to meet the donor’s objectives. The donor can name a charitable beneficiary and even designate the ultimate purpose of the gift.
Charitable Remainder Unitrust
A Charitable Remainder Unitrust is a flexible gift arrangement that may work well for younger donors or donors who wish to use real estate or closely-held securities to make their gifts. After assets are placed in the trust, a fixed percentage (usually between 5% and 7%) of the trust’s assets are provided as income each year. When the trust is created, the donor selects the stated percentage. The assets are re-valued annually so that, as the principal increases (or decreases), so do the income payments to the beneficiaries. Plans can be customized to allow for deductions in peak earning years and higher income at retirement. Thus, this vehicle is a good inflation hedge and vehicle to combine with a gift of real estate. A unitrust may be established at MCPHS with a minimum gift of $25,000. A donor may make additional gifts to the unitrust at any time.
If you have any questions or would like further information about Life Income Gifts, please call 1.800.322.1124 or e-mail development@mcphs.edu