A Gift Creates a Scholarship and Income

When Jim Mercer built a second home near his property in the foothills, he anticipated his daughter Debra would use the home for her personal residence. But as sometimes happens, even with the best planning, life can take a sudden turn. Debra passed away suddenly, leaving Jim with his memories of Debra, and the home he had built for her.

Jim rented the property for a while, but recently decided he would like to get out of the landlord business. He also wanted to create a legacy for Debra and make a difference for students at Sacramento State in her memory. In selling the property, Jim would face both capital gains and depreciation recapture on this year's tax bill. However, by gifting the proceeds of the property to Sacramento State, Jim was able to minimize his tax bill considerably, wiping away both capital gains and the depreciation recapture, as well as make a gift to start the Debra Mercer Memorial Scholarship Endowment, and create a charitable gift annuity that will provide annual payments to him for the rest of his life.

Jim's intentions were to make a gift through his estate to fund the scholarship, but through ongoing discussions about his intentions, and by gifting the proceeds of the real estate sale to Sacramento State, Jim was able to make the gift now. Not only will he be able to meet future Debra Mercer scholarship recipients, but he will also avoid substantial income taxes, get out of the landlord business and create an income stream, which is largely tax-free, for the rest of his life. Due to the size of the gift, Jim won't be able to use the entire deduction in one year, but will be able to spread the remainder of the deduction for up to five additional years.

In many cases, it may make sense to gift unencumbered property before selling it, and in others, a charitable remainder trust may be more appropriate. If you are interested in learning more about gifts of real estate, appreciated securities, charitable gift annuities, or charitable remainder trusts, please give us a call anytime, or explore our website for more information.

We look forward to helping you with your planning.   

Kevin J. Gonzalez, Ed.D.
Director of Major and Planned Gifts
Sacramento State
916.278.6290
kevin.gonzalez@csus.edu

Lisa Woodard-Mink, CSPG
Director of Planned Giving
Sacramento State
916.278.3852
lisa.woodard-mink@csus.edu

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A charitable bequest is one or two sentences in your will or living trust that leave to Sacramento State a specific item, an amount of money, a gift contingent upon certain events or a percentage of your estate.

an individual or organization designated to receive benefits or funds under a will or other contract, such as an insurance policy, trust or retirement plan

"I, [name], of [city, state, ZIP], give, devise and bequeath to Sacramento State [written amount or percentage of the estate or description of property] for its unrestricted use and purpose."

able to be changed or cancelled

A revocable living trust is set up during your lifetime and can be revoked at any time before death. They allow assets held in the trust to pass directly to beneficiaries without probate court proceedings and can also reduce federal estate taxes.

cannot be changed or cancelled

tax on gifts generally paid by the person making the gift rather than the recipient

the original value of an asset, such as stock, before its appreciation or depreciation

the growth in value of an asset like stock or real estate since the original purchase

the price a willing buyer and willing seller can agree on

The person receiving the gift annuity payments.

the part of an estate left after debts, taxes and specific bequests have been paid

a written and properly witnessed legal change to a will

the person named in a will to manage the estate, collect the property, pay any debt, and distribute property according to the will

A donor advised fund is an account that you set up but which is managed by a nonprofit organization. You contribute to the account, which grows tax-free. You can recommend how much (and how often) you want to distribute money from that fund to the University Foundation or other charities. You cannot direct the gifts.

An endowed gift can create a new endowment or add to an existing endowment. The principal of the endowment is invested and a portion of the principal’s earnings are used each year to support our mission.

Tax on the growth in value of an asset—such as real estate or stock—since its original purchase.

Securities, real estate, or any other property having a fair market value greater than its original purchase price.

Real estate can be a personal residence, vacation home, timeshare property, farm, commercial property or undeveloped land.

You give assets to a trust that pays our organization set payments for a number of years, which you choose. The longer the length of time, the better the gift tax savings to you. When the term is up, the remaining trust assets go to you, your family or other beneficiaries you select. This is an excellent way to transfer property to family members at a minimal cost.

You fund this type of trust with cash or appreciated assets—and receive an immediate federal income tax charitable deduction. You can also make additional gifts; each one also qualifies for a tax deduction. The trust pays you, each year, a variable amount based on a fixed percentage of the fair market value of the trust assets. When the trust terminates, the remaining principal goes to the University Foundation as a lump sum.

You fund this trust with cash or appreciated assets—and receive an immediate federal income tax charitable deduction. Each year the trust pays you or another named individual the same dollar amount you choose at the start. When the trust terminates, the remaining principal goes to the University Foundation as a lump sum.

A beneficiary designation clearly identifies how specific assets will be distributed after your death.

A charitable gift annuity involves a simple contract between you and the University Foundation where you agree to make a gift to the University Foundation and we, in return, agree to pay you (and someone else, if you choose) a fixed amount each year for the rest of your life.

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