For many individuals, estate planning that takes full account of personal, family, business, and charitable objectives can benefit from a creative application of "strategic philanthropy" as one component of a comprehensive plan. The brief descriptions that follow of representative gift vehicles are meant to demonstrate the range of planning tools available to you and your advisors. Lawrence is committed to providing alumni and friends of the college with up-to-date, accurate information in order to facilitate the decision-making that surrounds such decisions. We would welcome the opportunity to assist you in reviewing the applicability of any of these methods as you consider how best to make a gift to Lawrence.
Retirement Plan Assets -- "Qualified Plans"Retirement Accounts -- IRAs, 401(k), 403(b), TIAA-CREF, and the like -- are a major factor in many financial plans. Because they often represent a sizable proportion of one's portfolio, it is natural to think of these assets when considering philanthropy.
When funds are removed from a qualified retirement plan, the owner must pay income tax on the withdrawl. Moreover, if qualified plan assets are included in one's estate, the amount in the plan is effectively taxed twice -- once as "income with respect to a decedent" and then again under the estate tax structure. Retirement plan assets thus make a poor vehicle for a person to provide an inheritance to heirs because of the taxes that must be paid on withdrawls during life or on the qualified plan assets contained in one's estate.
Fortunately, both income and estate taxes can be avoided by giving plan assets to charity at death, therefore making IRAs efficient vehicles for philanthropy. However, care must be taken to make the charitable orginization(s) beneficiary(ies) of the plan directly, rather than allowing the plan assets to be included in one's estate. Since the administration of each plan varies according to the policies written into the plan, it is best to seek advice from your plan's administrator and experienced professional advisors when considering naming charities as beneficiaries of your qualified plan assets.
Charitable Lead Trust
A "lead trust" is the converse of a charitable remainder trust. In the lead trust, assets are put in trust for a specific period, either a lifetime or a predetermined number of years, after which the trust assets revert to the grantor (donor), family members, or other individuals. During that period, the earnings of the trust are paid to Lawrence. Thus, the charity's interest "leads" that of the the remainder beneficiaries.
Although it is possible to secure an income tax deduction from a charitable lead trust, this vehicle is more commonly used because of its potential to effect substantial estate and/or gift tax savings, which can be greater than if the same assets were transferred to family members through a will or other type of trust. If heirs are to be recipients of the lead trust assets upon termination, a gift tax may be due initially. The amount subject to tax is, however, reduced by the value of Lawrence's charitable interest, which will substantially lower the tax liability.
A properly constructed lead trust can provide a further benefit in the donor's ability to channel to heirs all future appreciation of the assets placed in trust without diminution by gift or estate tax.
A charitable lead trust may be established with cash, bonds, securities, closely held stock, income-producing real estate, or partnership interests.
Q-Tip Trust
A Qualified Terminable-Interest Property trust provides a high degree of flexibility in providing for a surviving spouse's needs and subsequently benefiting a charity. In this arrangement, a trust is created by will for the benefit of the surviving spouse. The trustee is empowered to distribute income to the spouse, and to invade the trust corpus if necessary, to maintain lifestyle or cover medical or other costs as they may arise. Any remaining assets are then distributed to charity as specified in the trust. The full estate tax marital deduction is available, as is an estate tax charitable deduction in the spouse's estate. A professional advisor should be consulted to learn more about this type of trust.
There are many other creative charitable giving vehicles that can factor into estate planning with benefits for both the donor and Lawrence University. While these types of gifts can be very advantageous for the individual and the college, the issues surrounding them are often complex, and it is important to involve representatives of the college early in the process.
Real Estate
Whether a primary residence, a seasonal home, a commercial property, or a parcel of farmland, real estate can be turned into an intelligent charitable gift. Because such gifts require advance consideration and approval from the college's Board of Trustees, it is important to involve representatives of the college early in preparing for them.
Life Insurance
Billions of dollars of life insurance are in force nationwide, but not all policies continue to serve a useful purpose for their owners. For many individuals, a change in circumstances or the death of a beneficiary leaves them holding life insurance policies that may be a resource for philanthropy.
Gift of Partnership Interests
An outright contribution of a partnership interest, general or limited, could provide the donor with a valuable income tax deduction. Because gifts of partnership interests raise complicated tax and investment questions, it is important to discuss such gifts with qualified professional advisors.
Family Limited Partnerships
The family limited partnership represents a way for a stock owner in a closely held corporation to arrange for the orderly transfer of stock to the next generation at substantial estate and gift tax savings. Because these arrangements raise complicated tax and investment questions, it is important to discuss such gifts with qualified professional advisors.
Gifts of Tangible Personal Property
Gifts of items directly related to the educational mission of Lawrence; e.g., musical instruments, fine art objects or collections, scientific equipment, and the like can produce important tax benefits for the donor. When appropriate, Lawrence retains the right to add such items to its permanent collections or inventories. The college also may sell the items and use the proceeds to generate capital for a purpose specified by the donor. Donors may take an income tax deduction for the appraised fair-market value of the object(s).
The Lawrence University Pooled Income Fund
This gift option involves an irrevocable transfer of money or securities to a pooled investment fund managed by the college. Income beneficiaries are assigned units in the fund in proportion to the amount contributed, and payments are made to them for life from the actual earnings of the assets under management. A sizable charitable deduction is allowed on the donor's federal income tax return based on the age(s) of the income recipient(s). In addition, the assets used to effect the gift are removed from the donor's estate, and there is no capital gains tax due from the donor when the appreciated securities are transferred to the pooled income fund. Income recipients may include the donor, a surviving spouse, or anyone else for whom the donor would like to provide a regular stream of payments.
