| Giving Through One’s Will
Bequests
Southwestern Medical Foundation recognizes that few gifts are more meaningful or special than bequests. Your Will can give support and protection beyond your lifetime to the people and institutions you love. The Foundation urges you to work with your attorney to make certain that your Will is drafted in such a manner that your wishes can be fulfilled. Careful estate planning and a well drafted Will can ensure that your assets, which might otherwise go to the government, are entrusted to persons and institutions that are important to you.
Characteristics of Bequests to the Foundation
• Your bequest can be a specific dollar amount.
• You may designate that a percentage of, or all of, the remainder of your estate after debts, taxes, expenses, and specific bequests, pass to the foundation.
• You may name the Foundation as a secondary beneficiary, to receive its bequest in the event that other beneficiaries (e.g., spouse, children) do not survive you.
• You may select cash, stocks and bonds, real estate, artwork, collectibles, or other property as part of your bequest.
• Your estate receives an estate tax charitable deduction for the fair market value of the bequest.
Types of Bequests to Southwestern Medical Foundation
• A bequest to support the general purposes of UT Southwestern.
• A bequest to provide support for a specific research or clinical project, program, or department at UT Southwestern.
• A bequest to provide endowed support of a specific research or clinical project, program, or department at UT Southwestern. (Naming opportunities available)
• A bequest to support the general purposes of the Foundation. Such funds may be used as matching gifts or other special support of UT Southwestern.
Sample Bequest Language For You And Your Attorney To Consider
“I do hereby bequeath ________________________ to Southwestern Medical Foundation, Dallas, Texas, for the use and benefit of The University of Texas Southwestern Medical Center at Dallas, located at 5323 Harry Hines Boulevard, Dallas, Texas 75390-9009. It is my wish that this bequest be used to support _________________________________________ at UT Southwestern. None of these funds shall ever become part of the Permanent University Fund, the Available University Fund, or the General Fund of the State of Texas, nor shall they be subject to appropriation by the Legislature.”
Gifts That Provide An Income To The Donor
Many of our friends have been delighted to discover that there are a number of ways they can make substantial gifts to Southwestern Medical Foundation while still receiving income for themselves. Such gifts can be made through either a charitable gift annuity or a charitable remainder trust.
Charitable Gift Annuity:
The most popular way of doing this is also the simplest: the charitable gift annuity. With a simple contractual agreement, you can make a gift to Southwestern Medical Foundation for the benefit of UT Southwestern and receive lifetime payments for yourself or your designated beneficiary or beneficiaries.
In return for a gift of a specified amount, the Foundation will pay you, or whomever you designate, a stream of income for life. The payments are a fixed amount and generally depend on the number (up to two) and age(s) of the beneficiary(ies). For instance, payments would be higher for an annuity payable for life to one person, aged 70, than to a couple, both 70, because of the longer life expectancy of the couple. In addition to the payments from a gift annuity, you get an income-tax deduction for a portion of the gift.
Example²: John and Mary A, both 70, make a gift of $10,000 in return for an annuity of $590 per year as long as either of them lives. The gift generates a current income-tax deduction of $2,427.
Better still, a portion of the annual payment is tax-free. For the remainder of their life expectancies, $370 of the $590 annual payments John and Mary receive will be tax-free.
In addition to all its other benefits, the gift annuity also offers the opportunity to reduce capital-gains tax when long-term, appreciated property is used to fund it. And, the reduced amount of tax that is payable can be spread over the donor’s life expectancy.
Example²: Fred B, 72, owns stock worth $10,000 that he bought two years ago for $5,000. If he sells the stock, he will realize a gain of $5,000 and will owe $750 in capital-gains tax at the 15% rate.
Instead, Fred uses the stock to fund a gift annuity that will pay him $670 per year for life. By doing so, Fred has to recognize only $3,169 of gain, and he can spread that over his life expectancy of 14.5 years, at a rate of $218 per year. Plus he receives a charitable deduction of $3,661.
Because of their simplicity, gift annuities typically do not require a great deal of time or expense to complete, making them suitable for gifts of all sizes. Sometimes a gift annuity can even be the best choice for the largest of gifts.
Charitable Remainder Trust
A charitable remainder trust provides a gift to Southwestern Medical Foundation for the benefit of UT Southwestern and income for you throughout your lifetime, and, if so stated, for members of your immediate family throughout their lifetimes. The amount remaining reverts to the Foundation. A charitable remainder trust is irrevocable. In addition to the income stream provided to you and the remainder gift to the Foundation, the charitable remainder trust provides you with the following:
• An immediate income tax deduction in the year of the initial gift equal to the present value of the remainder interest based on the fair market value¹ of the asset transferred, the payout rate chosen, the expected time that will expire before the Foundation will receive the remainder, and the assumed interest rate.
• An increase in tax benefits if the trust is funded with appreciated securities or other property that would otherwise be subject to long-term capital gains taxes if sold by you.
• An opportunity to diversify your investments free of capital gains tax.
• Immediate recognition.
There are two types of charitable remainder trusts: unitrusts and annuity trusts. They differ in the way the payments to you are set up.
Charitable Remainder Unitrust
This trust provides payments to the donor based on a percentage of the value of the trust (must be at least 5%) as determined annually. The unitrust is attractive to a donor who is seeking a possible defense against inflation.
Charitable Remainder Annuity Trust
This trust is particularly attractive to persons who wish to receive a constant, predictable cash flow. The payments are fixed and based on a percentage (not less than 5%) of the fair market value of the gift at the time of establishment.
Charitable Remainder Unitrust Example²
A friend of UT Southwestern, age 67, wants to find a way to make a gift to Southwestern Medical Foundation for the benefit of UT Southwestern that will also provide her with a lifetime income that will grow annually to minimize the effects of possible future inflation. She has a current portfolio of stocks valued at $100,000 with a cost basis of $30,000. The stocks pay dividends equal to a 4% annual return.
What could she do?
She could establish a charitable remainder unitrust with Southwestern Medical Foundation. After consultation with the Foundation and her tax advisor, she might choose a 6% return and name herself sole beneficiary for life. In return, she will increase her annual income for life, realize a significant current charitable tax deduction, and defer a potential current capital gains tax. Her income for life will grow annually with the value of the trust and the remainder will revert to Southwestern Medical Foundation for the benefit of UT Southwestern upon her death.
Charitable Remainder Annuity Trust
Example²
Susan M., who has been a friend of UT Southwestern for a number of years, would like to diversify her investments and create a stable annual cash flow to help pay for her child’s college education. She also would like to significantly increase her support of UT Southwestern. She owns 10,000 shares of XYZ Corporation worth $1,000,000 that she purchased for $500,000. XYZ Corporation does not pay dividends. She would like to sell the stock and diversify, but does not want to pay tax currently on the gain.
What could she do?
After consultation with the Foundation and her tax advisor, Susan could establish a charitable remainder annuity trust with the Foundation by contributing her XYZ stock in return for a 7% fixed annual annuity interest. She would name the Foundation for the benefit of UT Southwestern as the remainder beneficiary. The trust terms would provide that she is to receive $70,000 (before tax) each year for her lifetime. Susan also would receive a current tax deduction equal to the present value of the remainder interest1. The trust can sell the stock free of tax and reinvest in fixed income securities which would allow Susan to pay for her child’s college education.
Gifts That Provide An Income To Southwestern Medical Foundation And Then Return To The Donor Or The Donor’s Family
Charitable Lead Trust
The charitable lead trust provides Southwestern Medical Foundation with an income stream to support UT Southwestern for a set number of years; and, at the termination of the trust, the remainder returns to the beneficiaries such as your children. This type of gift is most often attractive to donors who are interested in transferring assets to family or friend (s) at the lowest possible cost. More complex than other planned gifts, lead trusts have several combinations of options that impact tax advantages. Typically a lead trust is used when the donor does not need or cannot use a charitable income tax deduction. It is frequently used to satisfy an annual pledge and is a very advantageous gift in a capital campaign.
Example²
A friend of UT Southwestern would like to help the Medical Center construct a new facility and would like to contribute $50,000 annually to the project over a period of 10 years. He would also like to provide for his two children’s college education. The oldest child is 11 years away from entering college. He has inherited some stock valued at $600,000 that is expected to appreciate over the next 10 years. He does not need this asset to meet his current living needs and cannot use charitable income tax deductions presently.
What could he do?
He has an attractive option of creating a charitable lead trust with Southwestern Medical Foundation by contributing the stock to the trust for a 10-year period and naming UT Southwestern as the current income beneficiary. The trust would sell enough stock annually to pay UT Southwestern $50,000. The trust would receive a charitable income tax deduction that would offset any gain incurred on the annual sale of the stock. The donor would name a trust for the benefit of his children as the remainder beneficiary. At the end of 10 years, the donor’s children would receive the remainder of the trust’s assets in trust to be used for their college education. Even if the assets increase substantially by the time the remainder is transferred to the children, there would be no capital gains, estate, or gift tax due on the appreciation.
Giving One’s Home And Continuing To Live There
Retained Life Estate
As creator of a retained life estate, you irrevocably deed to Southwestern Medical Foundation your home or farm, but retain the right to live in it for the rest of your life, a term of years, or a combination of the two. You may also use a vacation home to create this kind of gift. While you retain the right to live on your property, you continue to be responsible for all routine expenses – maintenance fees, insurance, property taxes, repairs, etc. If you later decide to vacate your property, you may rent all or part of the property to someone else or sell the property in cooperation with Southwestern Medical Foundation.
When your retained life estate ends, Southwestern Medical Foundation can then use your property or the proceeds from the sale of your property to support UT Southwestern in the manner you designate.
Example²
If you are age 72 and irrevocably transfer your home or farm, which has a total value of $100,000, to Southwestern Medical Foundation for the benefit of UT Southwestern and retain the right to live in it for the rest of your life,
Benefits Include:
You will qualify for a federal income tax deduction of approximately $49,000¹. Your deduction may vary modestly depending on the timing of your gift. Note that deductions for this and other gifts of cash and non-appreciated property will be limited to 50% of your adjusted gross income. You may, if necessary, take unused deductions of this kind on tax returns over the next five years, subject to the same 50% limitation.
* You will retain the right to live on your property for the rest of your life.
* Your estate may enjoy reduced costs and probate taxes.
* You will provide generous support to UT Southwestern.
Making A Gift By Selling An Asset For Less Than Its Value
Bargain Sale
A bargain sale is a simple agreement in which you sell securities, real estate, tangible personal property, or other assets to Southwestern Medical Foundation for the benefit of UT Southwestern for less than their current value. Potential benefits of making a bargain sale to Southwestern Medical Foundation are:
• Avoiding the burden of property management.
• Generating immediate liquidity.
• Supplementing your retirement income.
• Decreasing your tax liability with the charitable deduction.
• Decreasing your potential capital gains tax liability.
Example²
A friend of UT Southwestern currently owns property with a fair market value of $50,000. The property was purchased several years ago for $25,000 and is debt free. He decides to sell the property to Southwestern Medical Foundation for the benefit of UT Southwestern for $25,000.
The donor receives the following benefits:
• A federal income tax deduction of $25,000¹.
• $25,000 from Southwestern Medical Foundation.
• Reduced capital gains tax liability (capital gains tax on $12,500 instead of $25,000).
• Reduced probate and estate costs.
• Generous support of UT Southwestern.
Making A Gift Of Life Insurance Policy
Life Insurance
With the opportunity to convert a minimal investment into a major gift in the future, life insurance provides a means of making a much more substantial gift to the Foundation than most people can normally afford. Your gift of life insurance to the Foundation may include a number of the following tax advantages:
• Charitable deductions for premiums paid.
• Charitable deduction for the cash surrender value of the gift.³
• Charitable deduction for the replacement cost of a comparable policy (except to the extent it exceeds your original cost).³
• Charitable exemption from your estate.
Life Insurance Options
• You can purchase a new policy naming Southwestern Medical Foundation as the irrevocable owner and beneficiary.
• You can give the proceeds of a policy which has outlived its original purpose (e.g., a policy purchased to protect children who are now independent, a business now secure, relatives now deceased) to satisfy the intent of making a gift for the benefit of UT Southwestern.
• You can give a policy on which you are now paying premiums.
• You can give a fully paid-up policy.
• You can name Southwestern Medical Foundation as the beneficiary of a policy you already own.
Example²
A friend of UT Southwestern, age 45, would like to make a large donation to Southwestern Medical Foundation for the benefit of UT Southwestern but has a majority of his assets tied up in various employee benefit plans. However, he owns a $1,000,000 life insurance policy on his life with his wife listed as the beneficiary. They agree that she would not need the proceeds of the policy for supporting her lifestyle. Therefore, he irrevocably assigns the policy with current cash value of $40,000³ to the Foundation for the benefit of UT Southwestern. The couple receives a charitable income tax deduction of $40,000 in the year of the assignment¹. They agree to make tax-deductible annual gifts to the Foundation to be used to pay future premiums on the policy.
Providing For Family As Well As The Foundation Through A Gift
Wealth Replacement Trust
Of paramount importance in making substantial charitable gifts is the concern for taking care of loved ones, usually children and/or grandchildren. The concept of a wealth replacement trust is one that is of supreme interest in this regard. When making a large gift to Southwestern Medical Foundation either as an outright gift or as a planned gift, you can establish a trust that purchases a life insurance policy on your life and has the children as its beneficiaries. Upon your death, the proceeds from the policy pass to the children free of estate tax, replacing that part of the children’s inheritance used in the charitable gift. Frequently the money saved in taxes with the charitable gift is enough to offset the cost of the policy. Wealth replacement trusts are typically used with charitable remainder trusts.
Example²
A friend of UT Southwestern, who established a charitable remainder annuity trust at Southwestern Medical Foundation with UT Southwestern as the beneficiary of the remainder, was concerned about the gift to the Foundation diminishing her son’s inheritance. To offset this loss of future income for her son, she established a wealth replacement trust with a life insurance policy on her life equal to the assets transferred to the charitable trust. She will use tax savings from the charitable gift and some of the after-tax income from the remainder trust to make additional gifts to the replacement trust, which are enough to make the premium payments on the policy. On her death, the proceeds from the insurance policy will pass to her son free of estate taxes, thus increasing the amount of inheritance from the value of the original asset used for the gift.
If you would like additional information on planned gifts, please contact Mr. Randy Daugherty, Planned Giving Director, at 214-351-6143 or rdaugherty@swmedical.org.
You should consult your own legal and tax advisor about the applicability of the above information to your situation.
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