A Guide To Giving to The University Of Texas at Arlington

by Laure Andersen

Philanthropy is an important part of higher education. Generosity from friends, corporations, and foundations is required to enable us to meet the many urgent needs for which other dollars are not available.

The following overview of giving options is provided as a resource in planning your philanthropic program. This summary may help you decide which type of gift best suits your personal situation, how you can help the programs in which you are most interested at The University of Texas at Arlington, and what manner of giving will be most rewarding to you.

Planned Gifts

Planned giving is becoming an increasingly important part of our comprehensive development program. Planned contributions allow you to make certain provisions for yourself and your family, and thereafter to provide a benefit to UTA to further our programs for teaching, research, scholarships, and public service.

Planned gifts include the use of various kinds of trusts, gifts of life insurance policies, gifts of real property subject to a life estate, gifts of retirement plan benefits, and various other bequests both during lifetime and after death. Charitable giving is closely regulated by the law and requires specialized arrangements to achieve the goals desired.

The following briefly describes certain key features of these basic types of gifts:

Charitable Lead Trusts

A donor may create a trust which will pay the income earned to the University for a fixed period of time not to exceed 21 years. The assets or principal in the trust are then returned to the donor, or he or she may designate that such assets go to others. This technique is ideal for individuals in high tax brackets who expect to remain in a high income position for the life of the trust. The income earned by the trust is not taxable to the donor and, in some cases, such an arrangement could place the donor’s remaining income in a lower tax bracket during the term of the trust. When the donor designates that the trust assets are to go to others (for example, family members) after the selected number of years, the savings, in transfer taxes can be quite dramatic.

Charitable Remainder Trusts

There are three types of trusts that a donor can establish, retain an income interest in the property transferred to the University, and still realize federal income tax benefits. These are: The charitable remainder annuity trust; the charitable remainder unitrust; and the pooled income fund.

In all these gift situations, the donor irrevocably transfers cash or other property to the UTA under an agreement specifying that the University will distribute a certain amount of the annual income from the property to a named beneficiary(ies) for life or for a term of years not to exceed 21 with the remainder going to the University. The donor is entitled to a federal income tax deduction for the value of the remainder interest and is not subject to capital gains tax on the property conveyed under such an agreement.

Charitable Remainder Annuity Trusts

Under a charitable remainder annuity trust, the agreement provides that a specified dollar amount (at least 5% of the fair market value of the assets placed in the trust) be paid to the beneficiary at stated periods, not less often than annually. Donors may name themselves or another as a beneficiary under the trust or they may name themselves as a beneficiary for life and then another. All beneficiaries under the trust must be living at the time the trust is created.

As an example, a simple annuity trust might involve the transfer of $100,000 to the University with the agreement specifying that $6,000 (6% of the amount conveyed) is to be paid to the donor annually for his or her life and then to the donor’s spouse for life. The remainder would go to the University.

Charitable Remainder Unitrusts

The charitable remainder unitrust agreement provides that a fixed percentage (not less than 5%) of the fair market value of the assets in trust, computed annually, be paid to the beneficiary at stated periods, not less often than annually. Under a unitrust, the amount paid to the beneficiary each year will vary, while the amount paid under the annuity will remain constant. Like the annuity trust, the donor or others may be named as beneficiaries, with the remainder passing to the University.

An example of a unitrust would be a transfer of $100,000 to UTA with the agreement that 6% of the fair market value of the asset should be paid to the beneficiary(ies) annually. The first year $6,000 will be paid out. At the beginning of the second year, however, suppose the assets have increased in value to $110,000; then, the beneficiary would receive $6,600 for that year.After the lives of the named beneficiaries, the remainder would go to the University.

The unitrust may provide that the trustee pay the beneficiary only the amount of income earned by the trust if that amount is less than the percentage fixed in the agreement in any one year. Any deficiencies, however, in payments may be made up in future years in which the income earned exceeds the fixed percentage required under the trust.

Pooled Income Fund

A pooled income fund is a trust into which two or more donors irrevocably transfer property, contributing the remaining interest in the property to the University. The property conveyed must be comingled with other properties transferred into the fund, and each donor retains an annual income interest based upon the proportionate share of assets which the donor contributed to the total fund. As with the annuity trust and unitrust, the donors may name themselves or others as beneficiaries so long as all are living at the time the property is transferred into the fund.

For example, ten donors each contribute assets worth $50,000 to the University of Texas qualified pooled income fund, and all retain life income interests for themselves. Thus, each donor has contributed 1/10th of a total investment fund and each donor or the donor’s designated beneficiaries will receive 1/10th of the income. The actual amount of income depends on the amount earned by the fund and is not specified in the agreement.

Life Insurance

Gifts of life insurance are another way of supporting UTA. Such gifts provide a means of making a sizeable contribution at a relatively low cost. Certain gifts of life insurance, such as a gift of a paid-up policy, may qualify as a current gift rather than a deferred gift.

Contribution of a life insurance policy is accomplished either by delivering and assigning ownership of the policy to the University or by naming UTA as the sole, irrevocable beneficiary of the policy. The owner who makes the gift of an existing life insurance policy is entitled to a federal income tax deduction for the value of the policy at the time of the gift. If the policy is paid up, its value would be the cost of buying a new paid-up policy at the donor’s attained age. This value is slightly more than the cash surrender value of the policy. If the policy is not paid up, the donor would be entitled to a federal income tax deduction for the value of the policy at the time the gift is made. If the donor continues to make the premium payments after making the gift, the donor will be entitled to a federal income tax deduction for the amount of each premium.

Real Property Subject to Life Estate

The donor may transfer a personal residence or a ranch to the University while retaining the right for the donor and his or her spouse to live there for life. The donor will be entitled to a federal income tax deduction for the fair market value of the property at the time it is transferred less the value of the retained life estate. In addition, the donor escapes the capital gains tax on the appreciation. As with a charitable remainder trust, the advantages or benefits from such a transfer will vary according to the circumstances of each situation, and the University and the donor’s attorney or tax consultant should be consulted before a transfer of real property is made.

Gift of Retirement Plan Benefits

Many individuals have a substantial portion of their wealth invested in qualified retirement plans, including corporate retirement plans, Keogh Plans, IRAs, and Section 401K plans. There are significant tax benefits to these plans while the individual (and the individual’s spouse) is living, but upon death, income tax, federal estate tax, state inheritance taxes, and even a 15% excise tax on “excess” accumulations may be incurred. Such taxes can drastically reduce the amount of property passing to family members. Designation of a charitable organization, such as UTA, as the beneficiary of such assets upon the death of the individual (or the individuals’s spouse) can eliminate all but the 15% excise tax problem. A wealth replacement planning technique such as life insurance owned by an irrevocable trust can make up for the retirement funds that otherwise would have passed to family members.

Estate Planning

Estate Planning is the process of working with your attorney, accountant, trust officer, life insurance agent, or other advisor to establish an orderly and desirable arrangement for the disposition of your estate. In most estate plans, the disposition of property after death is the key consideration. Lifetime dispositions of property, however, are also an extremely important part of estate planning.

The primary objective in any plan should be the fulfillment of the wishes of an individual with regard to the happiness and security of the individual’s family and others (sometimes including charitable organizations) that he or she wishes to benefit. Taxes, although secondary, are an important part of estate planning and are often directly related to the accomplishments of the individual’s primary goals. In general, the tax benefits realized from a bequest to the University of Texas at Arlington will be dependent on the size of the testator’s estate and the property bequeathed.

There is no federal statue limiting the percentage of an estate which may be bequeathed to a charitable organization. If the bequest is of money, the testator’s estate is entitled to a deduction for the amount of the bequest. If the bequest is of property, the testator’s estate is entitled to an estate tax deduction for the fair market value of the property at the time of the testator’s death.