By the end of Labor Day week, virtually all students will be back to school—from kindergarten through graduate school. For the parents and grandparents of college students, a key issue is how to help pay the ever-increasing cost of higher education. For those who are also looking for a way to make a significant charitable gift, the charitable remainder annuity trust (CRAT) is an excellent gift opportunity.
Often the terms of such a trust can be planned to address a specific need, such as providing funds for education. When this desire is meshed with the opportunity to address major charitable goals and a way to reduce capital-gain tax, the results can be quite rewarding.
Example: Bill and Marge are excited that their granddaughter Beth will soon be enrolling in college. They’ve planned to assist Beth with her educational expenses and have been investing for some time with that in mind—but were concerned that their desire to make a substantial gift to support our work may have to be put on hold while they help Beth through school.
Years ago Bill and Marge invested $40,000 in growth stock now worth $100,000. They wanted to use this asset to generate $20,000 each year for the next four years for Beth’s education, but a major stumbling block was the $9,000 in capital-gain tax they would have to pay if they sold the stock to generate cash for Beth.
Instead, they decided to use the stock to fund a CRAT that will pay Beth $20,000 each year for the next four years while she is in school. This plan allows Bill and Marge to avoid capital-gain tax and to qualify for a federal income-tax deduction of more than $25,000. Their deduction will save them $8,900 in income tax in their 35% bracket.
In addition, if the trust can generate an 8% total return during the four-year term, more than $45,000 will pass to us to support our work—fulfilling Bill and Marge’s goal of making a substantial charitable gift.
Contact us today for more information about charitable trusts and all types of charitable gifts.
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