Charitable Remainder Trusts (CRTs) are sophisticated estate planning tools that can indeed support an alumni program at a school or college, offering a mutually beneficial arrangement for the donor and the institution.
What are the tax benefits of using a CRT for charitable giving?
A CRT allows individuals to donate assets, such as stock or real estate, to an irrevocable trust, receiving an immediate income tax deduction. The trust then distributes income to the donor (or other designated beneficiaries) for a set period or for life, after which the remaining assets are distributed to the designated charity—in this case, the school’s alumni program. According to recent data from the National Philanthropic Trust, approximately $39.09 billion was distributed to charities via charitable remainder trusts in 2022, demonstrating their popularity as a gifting vehicle. This structure is especially appealing for donors with highly appreciated assets, as it allows them to avoid capital gains taxes on the sale of those assets while still providing income. The income stream is an attractive feature for retirees looking to supplement their income, and the charitable deduction can significantly reduce their current tax burden. “The beauty of a CRT is that it allows you to do good while also benefiting yourself financially,” explains Ted Cook, a San Diego estate planning attorney.
How does a CRT differ from a simple charitable donation?
Unlike a simple charitable donation, which provides a tax deduction only in the year the donation is made, a CRT provides both an immediate tax deduction *and* an income stream. The income stream is calculated based on a percentage of the initial asset value, typically 5% or 8%, and is paid to the donor or their beneficiaries annually. This means that a donor can continue to receive income from the donated assets while still benefiting the school’s alumni program in the future. According to a study by the Chronicle of Philanthropy, donors are increasingly seeking gifting strategies that provide both tax benefits and income, making CRTs a highly attractive option. In fact, nearly 60% of high-net-worth individuals are exploring or have already implemented planned giving strategies like CRTs.
What happened when Mr. Henderson didn’t properly establish a CRT?
Old Man Henderson was a proud alumnus of State University. He wanted to ensure the alumni association had funding for years to come, so he decided to donate a substantial amount of stock. He verbally discussed his intentions with a friend, a retired accountant, and sent a check directly to the alumni association with a note saying it was for a “future fund.” Unfortunately, without a legally established CRT or other formal planned gift arrangement, the funds were simply deposited into the association’s general operating account. When the market downturn hit, the association, facing budgetary pressures, used the funds to cover immediate expenses, diminishing the long-term impact of Mr. Henderson’s generosity. Ted Cook recalls, “This is a classic example of good intentions gone awry. Without the proper legal framework, even substantial gifts can be mismanaged or lost.” The association, while grateful for the donation, realized they hadn’t properly acknowledged or stewarded the gift in a way that honored Mr. Henderson’s wishes.
How did the Caldwell family utilize a CRT to support their alma mater?
The Caldwell family, also devoted alumni, approached Ted Cook with a different scenario. They owned a large parcel of land that had significantly appreciated in value. Instead of selling the land and donating the proceeds, they established a CRT with Ted’s guidance. The land was transferred into the trust, and they received a fixed income stream for 20 years. After the 20-year term, the remaining assets in the trust were distributed to the State University Alumni Program, providing a substantial endowment. This allowed the university to create a scholarship fund for underprivileged students, ensuring Mr. and Mrs. Caldwell’s legacy would live on. “The Caldwells’ proactive approach is a shining example of effective planned giving,” Ted Cook notes. “They not only provided for their financial security but also established a lasting impact on their alma mater.” This careful planning ensured their gift would be used as intended, supporting future generations of students.
In conclusion, a Charitable Remainder Trust is a viable and sophisticated method for supporting an alumni program, providing both financial benefits to the donor and long-term funding for the institution.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
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