Choosing the Best Asset to Give


A donor may consider funding a planned gift with the following assets:

CASH

Cash is often the most convenient asset to transfer. Cash gifts are deductible in the year of the gift up to 50 percent of the donor’s adjusted gross income. Any excess can be carried forward for possible use in as many as five future tax years.

SECURITIES

Owners of highly appreciated securities may be reluctant to sell and pay capital gains tax on the appreciation portion of the fair market value. Funding a charitable remainder trust with securities can avoid capital gains tax liability at the time of the gift. The full value of the gift is available to the College to invest for the donor.

A current of deferred charitable gift annuity also may be funded with appreciated securities. Capital gains tax on a portion of the appreciation is realized but reported gradually, over the actuarial life span of the donor. As with all gifts or appreciated property, the donor may claim the deduction in the year of the gift, subject to a limit equal to 30 percent of adjusted gross income. As in the case of gifts of cash, unused deductions may be carried forward into five future tax years.

REAL ESTATE*

Real estate may appreciate more than other assets while yielding little income. A gift of real estate offering special benefits to both the donor and the College can be accomplished in several ways.

OUTRIGHT GIFTS OF REAL ESTATE

An outright gift of appreciated real estate results in a charitable tax deduction to the donor based on the fair market value of the property.

GIFTS OF REAL ESTATE TO PROVIDE INCOME

Funding a charitable remainder trust with a gift of real estate can provide a donor or designated beneficiary income for life or another period. As with gifts or other appreciated assets, the donor avoids capital gains tax on the increase in value of the real estate at the time the gift is funded.

A GIFT OF REAL ESTATE AND RETAINED LIFE ESTATE

A donor may give the Foundation a farm, principal residence, or vacation home and retain use of the property for life. The donor receives a charitable tax deduction equal to a portion of the value of the property in the year of the gift and retains rights and duties of ownership.

*The Tax Relief Act of 1997 changed some of the tax benefits for owners of real estate held long-term. These changes should be reviewed with a financial advisor.

OTHER ASSETS

Life insurance, stock in closely held businesses, and certain personal property such as artwork, antiques, and jewellery also can be given to the Foundation. Special considerations apply to each category.

In the instance of life insurance, for example, the donor transfers ownership to the Foundation and names it as the primary beneficiary. If the policy is not paid up, the donor makes annual contributions equal to the premium amount and is credited with deductible gifts of cash to the Foundation, which then pays the premium.

Stock in a closely held corporation can be used as a funding asset. An expert appraisal will establish the fair market value of the stock for gifts in excess of $10,000.

A life income gift can be funded with such tangible personal property as furniture, books, automobiles, jewellery, paintings, and antiques. The donors charitable income tax deduction typically will be limited to the amount paid for the object. When such property is used to fund a charitable trust, capital gains tax is bypassed at the time of funding the gift, and payments will be based on the full value of the property.