Posted February 1st, 1997

Scholarships Established With Charitable Annuity Trust

Although the small, liberal arts college named as beneficiary by one of its alumna prefers anonymity, the evolution of the gift tells a story worth repeating

The donor: A 1952 graduate of the college who is now age 66.

The gift: A $262,500 charitable remainder annuity trust funded with stock the donor purchased for $250.

The evolution of the gift: For many years the donor had made four-figure annual gifts. Several years ago, when the college began a capital campaign, the donors giving history alerted the capital campaign director to her level of commitment which then prompted a personal call.

In talking with the donor, the director learned that she was interested in setting up a scholarship fund. However, a real concern for securing a supplemental retirement income made the donor hesitate to move forward with her intention.

The director was able to suggest several feasible options that might accomplish the donor’s goals because of her familiarity with planned giving vehicles. At that point the college’s planned giving director entered the picture to work out the details of the donor’s chosen gift.

The donor’s motivation: In the early 1950s when she was a student at the college, the donor had received two scholarships of $60 each which helped her to complete her education.

She, therefore, wanted to set up a scholarship fund that would give preference to non-traditional students, particularly single mothers whose education had been interrupted. Her belief in the confidence-building power of education inspired her to select this special emphasis.

A secondary motive was the assurance of supplementary income for her own retirement years.

By funding a charitable remainder annuity trust with highly appreciated securities, the donor was able to avoid immediate liability for the considerable capital gains tax on the increased value — an initial savings of more than $70,000 (assuming a 28% tax rate). The donor also receives a charitable income tax deduction of approximately $90,000 for the gift portion of the trust.

As an astute business woman, the donor found the tax savings an attractive bonus. The trust also adds nearly $19,000 to her annual retirement income.

About the gift property: When she purchased the stock more than 20 years ago, the shares cost $.50 each, but were not returning much income.

The donor retained approximately 5,000 more shares of the same stock, which continue to appreciate. The gift’s message: With the stock market setting new records so frequently, others may be in a similar situation — holding highly appreciated assets they would like to use as a way of expressing gratitude to a nonprofit that has helped them in some way.

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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