Life Income Gifts

Charitable Gift Annuities are a solid investment in the future of Union University and provide a guaranteed life income to you. Annuities form a valuable part of our endowment.

A gift annuity is a contract between the donor and Union University that provides advantages for both. The donor makes a gift of at least $5,000 to the University and receives the following benefits:

• Guaranteed fixed payments for life, a portion of which is nontaxable
• Charitable income tax deduction for a portion of the gift
• Reduced capital gains taxes (if funded with appreciated assets)
• The payout rate on an annuity is based on the age of the donor(s) at the time the gift is made.

Mr. and Mrs. Smith are seventy-six years old in 2006 and wish to include a gift to the university as part of their financial plans. They choose to give $40,000 to the university in exchange for a gift annuity agreement. Under March 2006 rates* they will receive annual payments of $2,280 (5.7% of $40,000). They will receive these payments for as long as they live. $1.190 of their annual payment will be tax-free; the balance will be taxable. They will also receive a 2006 income tax deduction of over $12,986 for their “future gift” to Union University.

Gift annuities may be established for one or two lives.

*For current rates, contact Jason A. Vaughan, Director of Development, at jvaughan@uu.edu or 731-661-5162.

Deferred Gift Annuity are, as the name implies, useful for those who need to benefit from a current income tax deduction, while deferring income until some point in the future (usually at retirement).

The amount you receive each year (rate of return) depends upon your age now and your age when the payments are set to start.

Joanna, age 50, is a successful accountant who is in the 35% income-tax bracket. While she needs a present income-tax charitable deduction, she really doesn’t need annuity income now. She desires to supplement her retirement income when she reaches age 65. She strongly believes in the mission of Union University and wishes to financially support it.

Joanna transfers $100,000 to the University for a Deferred Payment Gift Annuity, with payments set to begin at age 65. Under March 2006 rates* she will receive an annual income of $11,900 ($100,000 x 11.9%), guaranteed for life. $2,570 of her annual payment will be tax-free and she will receive a charitable income tax deduction of $47,822.

Deferred Gift annuities may be established for one or two lives.

*For current rates, contact Jason A. Vaughan, Director of Development, at jvaughan@uu.edu or 731-661-5162.

Charitable Remainder Trusts provide a way for you to make a gift that benefits yourself, your family and Union University.

• The donor creates a trust, drafted by an appropriate advisor.
• The donor transfers assets such as marketable securities, real estate or cash to the trust, to be managed by the trustee (yourself or a trustee of your choosing).
• Each year income from the assets in the trust is paid to you or other beneficiaries that you name.
• Since you have made a gift that will ultimately be distribute to charity, you receive an income tax-deduction in the year the trust is funded.
• Payments continue until the trust “matures.” The trust document determines when this will happen. It could be at the death of the last beneficiary or after a stated period of years.
• When the trust matures, the remaining assets become a gift to Union University.
• Trusts can be designed to pay either a fixed, unchanging income or a fluctuating income that will vary with the performance of the trust assets.

Charitable Remainder Unitrusts provide income that fluctuates with the value of the trust assets. When the trust is established, you determine the annual percentage that will be paid. Each year this percentage of the value of the assets in the trust is distributed to you or others that you have selected. When the value of the investments is higher, more income is received. The income will be less if the value of the trust assets decline. Additions can be made to the trust and a tax-deduction is allowed for part of each addition.

Mr. & Mrs. Carter have substantial assets of highly appreciated stock. Over the years its value has increased greatly but it pays only slightly more than a two-percent dividend. They choose the charitable remainder unitrust as a means of receiving an increased income and giving to Union University. By transferring the stock to the trust, they receive several benefits. They avoid paying capital gains on the stock’s appreciated value. They are able to claim an income tax-deduction based on the “gift value” of the stock. They receive additional income because the trust has been structured to pay a six-percent return rather than the two-percent return that they had been receiving from the stock. They will receive income from the trust for the rest of their lives. When the survivor dies, the remaining trust principal will pass to Union University.

Charitable Remainder Annuity Trust pays a fixed percentage (at least 5 percent) of the initial value of the trust at least once a year. The payout is constant regardless of fluctuation in the value or trust earnings. In an annuity trust, if trust earnings are insufficient to make the required payments in any year, the difference is paid from trust principal.

The major benefits of an annuity trust include:

• Bypassing of potential capital gains.
• Fixed income
• Higher income
• An income-tax deduction that can reduce current income taxes

The annuity trust is frequently funded with highly appreciated low-yield stocks, municipal bonds or cash.

Mrs. Ellis transfers stock with a fair-market value of $100,000 and a cost basis of $15,000 and an into an annuity trust. She selects an 6.85% return, which will pay an annual income to her of $6,850 for life (or until the trust principal is exhausted). She directs that at her death, the remaining trust assets go to Union University. She also receives a charitable deduction of $33,691.

Charitable Lead Trust is the opposite of a Charitable Remainder Trust. Instead of transferring an asset to a CRT and receiving income from the trust, the donor places property in the trust and designates that the income should go to the University for a specified number of years. Upon termination of the trust, the principal returns to either the donor or to someone the donor designates. The Office of Planned Giving can explain how this kind of trust can benefit the University, the donor, and the donor’s family.

Revocable Living Trust is especially appropriate for a person who wishes to retain full control of property during life and still receive a charitable estate tax deduction for the value of property at their death. In addition, because living trusts avoid probate, they can offer substantial savings in estate administration costs. The process of distributing assets is also more rapid.

• The donor creates a trust with the help of an appropriate advisor
• The donor transfers assets to the trust. (Since the trust is revocable it may be changed or canceled at any time.)
• As trustee, the donor invests and manages trust assets as the trust document directs
• The trustee distributes principal and income during the life of the trust holder
• The final distribution of assets is made when the trust terminates

Wealth Replacement Trusts that are funded with life insurance are a way to replace the value of asset that has been given to the University.

Paul and Peggy desire to support the University yet want to provide a legacy to their children. They give appreciated property to the University and as a result save substantial current income taxes. With their tax savings, they purchase a ‘second to die’ policy in an irrevocable life insurance trust. After the second death, trust principal will be available tax-free for family members.