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Life Income Gifts
(How to increase income, receive a charitable deduction, and avoid capital-gains taxes)
If a donor owns stock, it is more often tax-wise to contribute stock than cash.
If donors own stock that is yielding low dividends (2-3%), a life-income gift may be appropriate. Donors could transfer the stock to the Caltech Y and establish a Charitable Remainder Unitrust or Charitable Remainder Annuity Unitrust that would yield a 5% or greater annual return. The income would be paid to the donors or a designee for life, after which the assets would be distributed to the Y outright. Through such an arrangement, donors would be increasing potential income all the while making meaningful (and tax-deductible) contributions.
Example:
Mrs. Brown, age 67, purchased securities many years back for
$10,000 and those same securities are today worth $100,000. The dividend yield for these securities is 2% annually, and thus she receives $2,000 per year. By transferring the securities to a charitable remainder trust and specifying that she wants a 6% return for life, she could:
- Triple her annual income (from the current $2,000 to$6,000);
- Avoid the capital-gains tax otherwise incurred on the sale of the securities, and;
- Be entitled to a charitable-contribution deduction of approximately $54,000. (the amount depends upon the age of the donor, the rate of return specified in the trust, the size of the gift, and other factors.)