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. If you are interested in making a gift to support Sacramento State, please contact Lora L. Hollingsworth at (916) 278-6115 or lora.hollingsworth@csus.edu.