Life Income Gifts

There are many reasons to make a life income gift. You may want to make a gift to the School of Engineering, but feel you do not want to part with the income that you receive from the asset you wish to give to the School of Engineering. Alternatively, you may want to convert an asset that is not generating much income and transfer it to the School of Engineering using an arrangement that will provide you (or someone you name) with more cash flow than you had before. By making a life income gift, you can support the School of Engineering while providing ongoing benefit to yourself or others.

Life income gifts serve dual purposes, by allowing you to make a gift to the School of Engineering while at the same time providing yourself or others with income for a period of time before the School of Engineering is permitted to use your gift. Because they provide income benefits comparable to or in some cases exceeding those that might be earned in ordinary investments, life income gifts can help donors to make more significant gifts than they might otherwise be able to make. In this sense, they are a "tax-wise" investment in the future of the School of Engineering.

You may make a life income gift by irrevocably transferring securities, money, or other property to the School of Engineering. The Institute then manages the investment of the assets and pays an income to you, your designated beneficiaries, or both. Income payments continue for the beneficiary's life or, in some cases, for a term of up to 20 years.

Charitable Gift Annuity

  • In exchange for a gift of money or property to the institute, the School of Engineering promises to pay a fixed amount each year to you or your designated beneficiary for life.
  • Gift annuity contracts essentially consist of two parts:
  • A current tax-deductible gift to the School of Engineering
  • The right to receive a fixed-dollar amount of income each year for the life of one or two beneficiaries
  • The annuity payment amount will depend upon the beneficiary's age at the time of the gift and the value of the property donated. If the gift is funded with cash, a substantial part of the annual annuity payments may be entirely tax free. In some states, regulations may prevent the School of Engineering from offering gift annuities to residents of those states.

Deferred Gift Annuity

  • Works the same way as a charitable gift annuity, except that the first annuity payment is deferred for at least one year from the date of the gift.
  • This is an excellent method of arranging dependable retirement income.
  • By deferring the date on which annuity payments begin, you will a) receive a larger income tax charitable deduction in the year of the gift and b) receive a larger amount for you or your beneficiaries.

Charitable Remainder Unitrust — Percentage Unitrust

  • Provides for income growth as the trust assets grow in value.
  • If the trust income exceeds the payment required to income beneficiaries, the excess is added to the principal.
  • If the payments required to income beneficiaries exceed the income of the trust, a portion of the trust principal (including accumulated gain) will be distributed.
  • Counters the effects of future inflation.
  • The annual income paid to the income beneficiary is not fixed at a specific dollar amount, but rather is a percentage of the asset value, usually between 5 and 7 percent.

Charitable Remainder Unitrust — Net Income Unitrust

  • Provides the donor greater income flexibility because it provides for payments of either a fixed percentage (at least 5 percent) of the trust's annual value or the net income of the trust, whichever is less.
  • Particularly well-suited for the younger donor who does not need large income payments now but who wants to allow the trust value to increase over time so that it pays higher amounts in later years.
  • Avoids the necessity of distributing trust principal while trust income is low and, in some forms, builds up "income credits" for the future.

Combination or "Flip" Trust

  • A hybrid of a net income trust and a standard unitrust.
  • Since 1998, IRS regulations have allowed a unitrust to begin as a net income unitrust and then "flip" to a percentage unitrust.
  • Allows a donor to give real estate or other illiquid assets, to the unitrust and then "flip," once the assets have been sold, to a percentage unitrust, which may be able to pay out more income over time.
  • Until the asset is sold, the trust only pays the lesser of the net income or the stated payout rate.

Charitable Remainder Annuity Trust

  • Provides the donor a fixed income for life and then supports the School of Engineering educational program of the donor's choice.
  • The annual dollar amount paid is mutually agreed upon by donor and the School of Engineering when the trust is established. The amount selected is usually between 5 and 7 percent of the initial fair market value of the property transferred to the trust.
  • Payments of the selected amount are made each year regardless of the income earned by the trust, and they are backed by the total amount of the assets held by the trust.

Charitable Lead Trusts (CLT)

  • An excellent way to pass on assets to heirs at a reduced transfer tax, while making a significant gift to the School of Engineering.
  • The School of Engineering will receive an income stream for the life of the trust.
  • A powerful investment tool for our donors who anticipate high estate and gift taxes in transferring your wealth to your heirs.
  • The opposite of a charitable remainder trust where the non-charitable beneficiary receives the income interest and the charitable beneficiary receives the remainder interest.
  • A valuable planning tool for the charitably-inclined client when making multi-generational transfers.

Two Types of Charitable Lead Trust

  • Grantor Lead Trust - where assets of the trust revert back to the donor at the end of the trust term.
  • Non-Grantor Lead Trust – where assets of the trust are transferred to one or more designated beneficiaries.

Pooled Income Funds: A gift is pooled with other contributions in a professionally managed fund. The donor or other beneficiary receives a proportionate share of the fund’s annual income for life, which varies depending on how much the fund earns and the number of shares the donor holds in the pool.