Charitable Giving to ASP

Ways to give to the Armenian Studies Program at California State University, Fresno while retaining lifetime rights.

Gifts to California State University, Fresno most commonly are in the form of cash, stocks and bonds or real estate that provide funds for current needs. Such current, outright gifts are highly valued because they enable the University to respond immediately to critical needs or unexpected opportunities.

Alumni and friends have become increasingly generous in recent years, for which the University is most grateful. However, many alumni and friends who feel strongly about Fresno State, its students, its faculty and its particular mission, are faced with personal or financial circumstances that simply do not allow them to give funds for current use. This article provides information about other forms of giving, generally called “life income” gifts. The distinguishing characteristic of a life income gift is that the donor retains lifetime rights to the gift property-typically the income from the property, or the right of occupancy in the case of a residence.

Although life income gifts can be complex, depending upon the donors’ circumstances and objectives, they are fundamentally simple. By taking a formal step now to benefit Fresno State in the future, a donor not only receives income for life (or for a term of years) but also realizes Federal and California income and other tax savings. Other non-tax benefits, as described below, are also available depending upon individual circumstances.

There is a great deal of flexibility with life income gifts. Although each involves a future gift to support the work of the University, each also works to benefit the donor in important ways. We can provide specific information that will enable you and your advisors to determine whether a life income gift can help fulfill personal or family objectives. Such detailed analysis and expert assistance are available to you without charge or other obligation.

To help you consider whether a life income gift could benefit you, here is a general information about the life income alternatives available through Fresno State.

Tax benefits. Each of the following life income alternatives offers four distinct and valuable tax benefits. Life income gifts can be a very attractive alternative to many alumni and friends who may not have thought they could provide significant gifts to the University.

No Capital Gains Tax. If appreciated assets are used to fund a life income gift, neither the donor nor the University will pay Federal or California capital gains tax on the appreciation.

Partial Income Tax Reduction. Life income gifts provide a current charitable income tax deduction. That deduction is based on the full fair market value of the assets put into the life income arrangement, but is limited to the “present value” of the University’s future or “remainder” interest. Because the University must wait for a period of time until the gift can be used, the deduction is adjusted accordingly. The amount of the deduction is based on the age (life expectancy) of the life income beneficiary, an assumed investment return as determined by the IRS (the “discount” rate) and the expected level of income to be paid out to the life income beneficiary.

Tax-Free Compounding. All future income and capital gain earned by the life income assets compounds on a tax-free basis, just as with funds held in a retirement account or pension plan. The distributions of income to the life income beneficiary are currently taxable to the beneficiary, but all undistributed income and gain is reinvested free of tax.

No Estate or Gift Taxes. When the University receives the remainder assets of the life income arrangement, those assets are not subject to any estate or gift tax. With the life income gift paying income to the donor or the donor’s spouse, all estate and gift taxes are avoided. A life income beneficiary other than the donor or the donor’s spouse may give rise to an estate or gift tax, but such consequences can be minimized or avoided with proper planning.

Alternative Methods
Fresno State offers the four basic life income gift arrangements available under the provisions of the Internal Revenue Code of 1986, as amended. Here is a brief description of each.

Charitable Remainder Annuity Trust. An Annuity Trust is established as a separate legal and tax entity to hold the gifts of one particular donor or a related group of donors. An Annuity Trust pays to the life income beneficiary a fixed dollar amount of income each year. Payments are made quarterly and do not change if there is any decrease or increase in the underlying value of the Trust’s assets. This life income arrangement is generally preferred by donors who seek a stable, assured income, often those who are older or who may have a fixed dollar obligation they are seeking to offset (e.g., a home mortgage).

Charitable Remainder Trust. A Unitrust is also a separate trust, established and managed in the same manner as an Annuity Trust. The distributions to the life income beneficiary, however, are variable. At the time the Unitrust is established, the donor designates a “unitrust percentage” and a “valuation date” to be used to calculate the distribution for each calendar year. For example, a 5% unitrust percentage and a January 1 valuation date would result in a revaluation of trust assets as of each January 1, with the life income beneficiary to receive 5% of that value as distributions for that year. With a successful investment policy, an increasing value of trust assets will result in an increasing income to the life income beneficiary.

Unitrusts may be either in the form of a “standard” percentage arrangement or in the form of a “net income” arrangement. With a “standard” percentage, the payment is made first out of ordinary income (dividends, interest, rents) and then out of capital gains. With a “net income” arrangement, the lesser of the unitrust percentage or ordinary income for the calendar year is paid out.

Remainder Interest in Residence. A gift of a remainder interest in a personal residence (primary residence, second home, vacation home) will allow the donor to continue to live in the residence for life, with title then vesting automatically in the University upon death. All of the tax benefits described above are available, but no separate trust or other payment arrangement is introduced. The donor continues to live in the residence (and remains responsible for property taxes, insurance, upkeep, etc.).