Income Producing Gifts
Cabrillo has helped many donors to support programs they value highly while contributing to their own financial security and peace of mind. Income producing gift plans can allow you to make a gift to Cabrillo and provide income for yourself or your beneficiaries at the same time. These plans allow you to take advantage of government tax laws that are designed to encourage philanthropy. They offer current income tax deductions and may provide an opportunity to avoid or reduce capital gains tax on assets that have substantially appreciated. Plans can also be used to minimize estate taxes. Cabrillo’s planned giving professionals will work with you to carefully and confidentially shape a gift that meets your needs.
You may be unfamiliar with the language of planned giving, so here we provide straightforward explanations for the basic tools for structuring these gifts: Charitable Remainder Trusts, Charitable Lead Trusts, and Pooled Income Funds.
Charitable Remainder Trusts
(1) Unitrusts: When you prefer an income that varies with market conditions
A charitable remainder trust allows you to make a major gift, typically of real estate or securities, while continuing to receive the income from your gift during your lifetime. A unitrust may even allow you to earn a higher return than you now receive, though you no longer have to manage your asset. After your lifetime or the lifetime of a beneficiary, the principal of your trust goes to support Cabrillo. During the year you establish the trust, you receive a charitable income tax deduction based on the current value of the asset less the value of the income interest, not the cost basis (what you have actually invested). You can make additional gifts to a unitrust at any time. The option is appropriate for gifts of $50,000 and above.
A charitable remainder percentage unitrust pays a fixed percentage of the value of the trust. This value can change with fluctuations in asset markets, so the amount that you receive can change every year. Since the amount of income you earn is not fixed, unitrusts, unlike annuities, can be a valuable hedge against inflation.
(2) Annuity Trusts: When your goal is a fixed annual income
Annuity trusts provide an annual income that is a fixed dollar amount based on the value of your assets when you place them in the trust. You minimize market risk with an annuity trust, though your earnings may be affected by inflation. You receive the annuity during your lifetime, your lifetime and the lifetime of a beneficiary, or for a specified time up to twenty years. The amount you receive is based on forecasts of future market conditions.
If you place appreciated assets in an annuity trust, you avoid capital gains taxes on the assets. You can also take a charitable income tax deduction during the year you make the gift. You have no further responsibility for managing the assets placed in the trust. Older donors who don’t anticipate significant losses from inflation during their lifetimes, and want an income they can depend on, often choose annuity trusts as a planned gift option.
Charitable Lead Trusts
When you want to see the difference your gift makes during your lifetime
If your main financial objective is safeguarding your estate from federal estate taxes, a charitable lead trust may be the ideal gift strategy. The trust pays out income to the Cabrillo College Foundation for a term you specify. When the term of the trust expires, the principal returns to you or goes to your heirs, but estate and gift taxes have been reduced or eliminated. The advantage of a lifetime lead trust is that you can see the difference your gift makes during your lifetime.
Income for Life for you – benefit for future generations
A charitable gift annuity is an extraordinary way to make a gift, increase your income, and slice your tax bill – all in one transaction! Our charitable gift annuity program was created as a service to our many friends who have expressed a desire to make a gift of significance, while still retaining income from the gift property during their lives.
A charitable gift annuity is a contract in which you exchange a gift of cash or securities for a guaranteed, fixed income each year for the rest of your life. Your gift annuity offers five distinct advantages:
Income for life – at attractive payout rates for one or two lives;
Tax Deduction Savings – a large part of what you transfer is a deductible charitable gift;
Tax Free Income – a large part of your annual payment is tax free return of principal;
Capital Gains Tax Savings – when you contribute securities for a gift annuity, you minimize any taxes on your “paper profit”;
Personal Satisfaction – from making a gift of lasting significance.
You can choose how frequently payments will be made – quarterly, semi-annually, annually; one-life or two-life annuities; cash or securities to fund your gift. Cash gifts allow maximum tax-free income; gifts of securities allow you to minimize capital gains taxes.