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Daily Camera

Enid Ablowitz

Giving and Getting

Do you have any underproductive or highly appreciated assets in your portfolio?  Are you looking for a way to provide income for your retirement (now or later), or generate income for an elderly dependent or create a tuition fund for your kids?   Do you also want to support your favorite charity but can’t because your assets are tied up?

Consider a life-income gift.

You can actually give away an asset and still receive income from it.  The impact to the charity is deferred, but such a gift may allow that charity to plan strategically and assure its long-term financial health.

Let’s look at one common example of a life-income gift:  the charitable remainder trust.  These kinds of trusts have been around for more than 30 years, and are a staple for charitable planning.  There are many varieties, but the basic concept is simple.

The donor identifies an asset that is highly appreciated, like a stock with a low cost basis that produces little or no income.  She makes a gift to the charity, and the charity creates a trust, liquidating the asset and reinvesting the proceeds. The payout of the charitable remainder trust can either be a fixed dollar amount, as in an annuity trust, or a fixed percentage of the net fair market value of the trust, revalued each year.  The latter is called a unitrust.

What’s the advantage to the donor?

• The donor receives a charitable deduction for a discounted portion of the gift, based on the income they are likely to receive.

• Income is produced related to the fair market value of the asset, not the net value after sale.

• If the asset had been sold, capital gains taxes would have been due.  

• The asset may continue to grow, and the appreciation in the trust is sheltered from future capital gains tax. 

• If established as a unitrust, your income could also grow, since it is calculated as a percentage of the trust value. 

Let’s look at how one donor used a deferred payment charitable remainder unitrust to accomplish his goals.  Glen was invested in a highly appreciated but volatile stock.  He wasn’t ready for retirement yet, but knew he would be in ten years.  He was afraid that the stock wouldn’t hold its value, but if he sold now, he’d have to pay a hefty capital gains tax.  He also wanted to make a significant gift to the service club where he had served as President, but didn’t feel he could let go of any of his assets, since he might need the income in the future.

Glen created a charitable remainder unitrust by gifting the stock to the club’s foundation.  They sold the stock to fund the trust, locking in the price at a near high.  Glen asked that payments be deferred for 10 years.  In the meantime, the trust value continued to appreciate, based on the conservative, but growth-oriented investment policy of the foundation.  The compounding of the investment return within the trust caused the value ten years out to be nearly four times the sale price of the stock, and Glen’s income was now calculated as a percentage of the appreciated value of the trust. 

Glen effectively locked in the stock value, avoided the original and any subsequent capital gains tax, sheltered the continued appreciation, got a charitable deduction, received income for life, and benefited the organization that meant so much to him.

There are many varieties of life income gifts.  Talk to your attorney, accountant, CFP or philanthropic advisor to “unlock” some of your underproductive assets and optimize your financial plan, as well as your philanthropy!

Send your questions about making charitable gifts to Enid Ablowitz, Features, Daily Camera, 1048 Pearl St., Boulder, 80302 or e-mail???/Fax????

Ablowitz, the Asst. Dean for Advancement at CU’s College of Engineering is a Certified Fund Raising Executive and has been working with donors for over a decade.  She is writing a book called Making Money Matter: 8 Steps to Thoughtful Giving.

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