With a gift of cash, a donor can make a simple gift and qualify for an income tax charitable deduction. There’s a reason cash gifts are so popular! Consider the following:

• The gift (cash, check, or credit card) will make an immediate impact on our important work.
• The full amount of the gift is tax deductible if the donor itemizes—the actual tax savings depends on the amount of the gift and the donor’s marginal income tax bracket.
• While the donor cannot deduct more than 60% of their adjusted gross income (AGI) in the year of the gift, they can carry over any excess deduction for up to five years.
• Because so many donors make cash gifts every year, the combined impact is an extremely significant and vital part of our ongoing work.

Will your client itemize their taxes this year?

Because the 2017 Tax Cuts and Jobs Act raised the standard deduction amount for individual taxpayers, many people now take the standard deduction instead of itemizing. However, if your client wants the tax advantage associated with charitable gifts of cash, they’ll need to itemize.

You may want to suggest that your client consider “bunching” their donations. Essentially, this means making two or more years’ worth of charitable gifts in one year to make itemizing worthwhile. You can help your clients determine if this is a good approach for them.

Evaluate the fit.

A cash gift is a good option if your client:

• Received extra cash this year (say, from a bonus, inheritance, winnings, etc.)
• Wants to secure a current charitable income tax deduction
• Wants to make an easy gift they can repeat year after year

Keep in mind that while a cash gift makes the same impact on our work as other types of gifts, your clients should not make cash gifts simply out of habit. Other gifts can provide various types of tax and planning benefits that are worth exploring.

See how it works.

Jonah receives a modest inheritance from a relative. Since he has already decided to make a gift to us this year in almost exactly that amount, it is very simple to make an online donation of that inheritance money. The UMass Foundation sends Jonah the proper acknowledgment of his gift, and he uses that to secure an income tax deduction when he itemizes.

Consider the timing.

Clients who want to qualify for a charitable deduction this year can make a donation at any time up to December 31. Mailed checks must be postmarked by December 31 (keep in mind that some post offices are closed on Saturdays and Sundays).

The UMass Foundation can help.

Reach out to us with any questions on charitable gift planning.

Appreciated stock offers powerful tax benefits as an outright gift or as funding for a life income gift.

OPTION 1—giving appreciated stock

Giving appreciated stock (held for more than one year) may let your clients make the biggest impact for the lowest cost thanks to the double tax benefit:

• Donors qualify for an immediate income tax charitable deduction for the full value of the stock if they itemize.
• Donors owe no capital gains tax on the appreciation.

Note that a donor’s deduction for long-term appreciated stock is 30% of their adjusted gross income. Any excess deduction can be carried over for up to five years.

Publicly traded stocks are the most commonly donated appreciated securities, but clients could also give bonds, mutual fund shares, or closely held stock.

Selecting the best stock to give

The best choice depends on your client’s portfolio, investment goals, and tax situation. General guidelines indicate that a donor might do well to consider a stock:

• Held for more than one year (since that will allow them to deduct the full fair market value)
• With significant appreciation (since that will provide the strongest tax benefits)
• That will help reposition their investments and rebalance their portfolio
• That lowered or cut its dividend

OPTION 2—funding a life-income gift with appreciated stock

Another option is for your client to use appreciated stock to fund a life-income gift, such as a charitable gift annuity or a charitable remainder trust. Benefits include:

• A donor qualifies for an income tax deduction (if they itemize) in the year of the gift.
• A donor creates an income stream to supplement other sources of retirement income—income that is likely to be higher than any dividends they might be receiving from the stock.
• A donor may be able to reduce or spread out the payment of capital gains tax on the appreciation.

Evaluate the fit.

Appreciated stock may be a particularly good option for a client to consider if they:

• Have stock they want to sell, but they don’t want to pay tax on the significant appreciation
• Want to rebalance their portfolio
• Want to employ one of the most powerful gifting options with double tax benefits

See how it works.

For the past few years, Jennifer has given the UMass Foundation a check for $10,000. This year, she realizes that the growth of some of her stocks has caused her investment portfolio to become too heavily weighted in equities. She decides to give us stock worth $10,000 that she purchased years ago for $1,000. If Jennifer itemizes, she can take a deduction for the full $10,000, even though $9,000 of it has never been taxed. In her 37% tax bracket, the tax savings are substantial.

Cash Gift

• Jennifer’s cash gift $10,000
• Income tax savings (37% tax bracket). $3,700
• Capital gains tax savings (23.8% of $9,000) $0
• Tax savings generated by Jennifer’s gift $3,700

Stock Gift

• Jennifer’s stock gift $10,000
• Income tax savings (37% tax bracket). $3,700
• Capital gains tax savings (23.8% of $9,000) $2,142
• Tax savings generated by Jennifer’s gift $5,842

Consider the timing.

To qualify for a charitable deduction this year, your client should initiate the stock transfer by mid to late December.

The UMass Foundation can help.

Ask us for an illustration that will clearly represent the anticipated financial and tax benefits of your client’s hypothetical gift.

With a gift from an IRA, a donor has a few options for making a powerful impact.

OPTION 1—a traditional qualified charitable deduction (QCD)

This may be appealing to a client who wants to make an immediate gift that counts toward their required minimum distribution (RMD). It works like this:

• IRA owners age 70½ or older can direct a transfer from an IRA directly to the UMass Foundation.
• The gift does not qualify for an income tax deduction, but any amount up to the annual aggregate limit ($100,000 in 2023) is tax free.
• The gift counts toward the donor’s RMD if one is due (generally, beginning at age 73).
• The gift has an immediate impact on UMass, and your client can make this gift every year if they choose.

OPTION 2—a new qualified charitable deduction

This may be appealing to a client who wants to make a gift that counts toward their RMD and also creates a new income stream for retirement. It works like this:

• IRA owners age 70½ or older can direct a one-time transfer from an IRA to create a new charitable gift annuity (CGA) or charitable remainder trust (CRT).
• The gift does not qualify for an income tax deduction, but any amount up to the limit ($50,000 in 2023) is tax free.
• The gift counts toward the donor’s RMD if one is due (generally, beginning at age 73).
• Spouses may contribute up to $50,000 each from their own IRAs into a single CRT or a joint-life CGA (which is helpful because most CRTs require a minimum of $100,000).
• Income payments may only go to the IRA owner and the owner’s spouse and are taxed at ordinary income tax rates.
• This is not an annual gift—your client may only use this option once.

Keep in mind that some of the rules and requirements differ if your client funds the CGA or CRT from an IRA.

OPTION 3—a charitable beneficiary designation

Your clients may prefer this option if they want to make a comfortable future gift that costs them nothing today. It works like this:

• At any age, your client can ask their IRA custodian for a change-of-beneficiary form.
• They can name the UMass Foundation as the sole beneficiary or percentage beneficiary.
• They pay nothing now and retain the right to change the gift if their needs and goals change.
• At their death, the UMass Foundation will receive the designated assets from their IRA.

Why should clients consider leaving retirement assets to charity?

Retirement account assets left to heirs are highly taxed—once in the estate and again as income to the beneficiaries. Stocks, bonds, mutual funds, and real estate are not subject to income tax when they transfer to heirs. By using IRA assets to make gifts and leaving other assets to family members, your clients minimize the income tax burden on their heirs, leaving more to their intended beneficiaries while meeting their charitable goals.

Evaluate the fit.

A gift from an IRA may be a particularly good option for clients to consider if they:

• Own an IRA and are age 70½ or older
• Want to avoid paying tax on their required minimum distribution
• Want to establish a source of fixed income payments to supplement other income streams in retirement
• Are looking for a flexible, easy way to make a significant future gift

See how it works.

Example one. Pat, age 75, is required to take a taxable IRA distribution of $15,000 this year. Pat wants to support the UMass Foundation and decides to make a qualified charitable distribution, transferring $15,000 directly from the IRA to us. The transfer counts toward Pat’s RMD, satisfying the distribution requirement, but no tax is due on the distribution. The full amount of the transfer supports our mission—nothing is lost to taxes!

Example two. This year, Sam (age 75) makes a one-time, tax-free QCD of $50,000 to fund a charitable gift annuity with the UMass Foundation—an easy way to make a powerful impact on our work. Sam will receive an annual payment of $3,300 for life, and these payments are taxable each year. If Sam had decided to personally receive the $50,000 distribution this year instead of using it for a QCD, the full amount would have been currently taxable.

Consider the timing.

The traditional QCD can usually be accomplished by year end if your client begins the process in early December. The new QCD option may require a bit more time to set up the CGA or CRT. A beneficiary designation is quick and easy to make at any time.

The UMass Foundation can help.

We are happy to provide more information about any of these options. We will provide your clients with substantiation for any QCD gifts. If your client makes a beneficiary designation, encourage them to let us know so we can thank them and ensure their gift will be utilized as intended.

With a gift in a will, a donor can make a powerful future gift that costs nothing today.

Making a gift in a will is an easy way for donors to meet their charitable goals—perhaps even allowing them to make more substantial gifts than would otherwise be possible. Consider the following:

• It is simple for a client to include a charitable gift when they write their will.
• It is almost as easy for them to add a gift to an existing will using a codicil.
• There is no immediate out-of-pocket cost—the donor retains full use of their assets during life, so the gift does not impact their current lifestyle.
• This is a comfortable gift because the donor can change it at any point during life.
• A donor can make an unrestricted gift or direct how they want their gift to be used.

Donors also have flexibility in how they designate a gift:

• A specific asset or amount
• A percentage of their estate
• What remains of their estate after all other gifts, taxes, and fees have been paid

A will controls most property, but not all.

Of course, not all property passes under a will. Clients who wish to make a gift using a life insurance policy, IRA, or other retirement or financial account might consider using a simple beneficiary designation.

Evaluate the fit.

A gift in a will may be a particularly good option for clients who:

• Are interested in a simple, powerful gift that costs nothing today
• Want the flexibility of a gift they can change in the future if their situation or goals change
• Are seeking ways to reduce any potential estate tax (a gift in a will qualifies for an estate tax charitable deduction)
• Are looking at options to fund an endowment gift, testamentary charitable remainder trust, or testamentary charitable lead trust

Your client doesn’t have a will? Remind them of the consequences.

Half of all Americans do not have a will. Whatever your client’s age or assets, if they die without a valid will or living trust to specify the distribution of their property, state law takes over without any consideration for their unique personal situation and wishes.

• A spouse may not get as much as expected (in many states, the spouse and children will each take equal shares of the estate under state law).
• A child or other relative with special needs will not be given any special financial consideration.
• Meaningful heirlooms or other belongings will not automatically go to their intended recipients.
• The court-appointed guardian for any minor children and/or children with special needs may not be the person your client would have chosen.
• The court-appointed estate administrator will likely not be the person your client would have chosen.
• Estate administration becomes more difficult without clear direction, allowing fees to accumulate and shrink the total estate.
• If your client has no heirs and no will, the state can end up with the entire estate.
• For larger estates, your client forgoes the chance to implement measures to reduce any potential estate tax.
• Your client loses the opportunity to direct assets to those charitable organizations they would like to acknowledge and support as part of their legacy.

See how it works.

Grace wants to include a charitable gift to the UMass Foundation in her will. She considers making a specific donation of 100 shares of stock but realizes this gift will surely change in value over time—perhaps significantly. Instead, she decides to leave a percentage gift—40% of her estate to each of her two children and 20% to us. When Grace dies, her executor will carry out her wishes by distributing her assets according to her instructions.

Consider the timing.

A gift in a will does not qualify for a charitable income tax deduction, so there is no rush to get it done by year end. However, since no one knows how long they have to live, there is some urgency for the client to at least create a will sooner rather than later.

The UMass Foundation can help.

• Ask us for specific language to include in the will. You may also refer to the Gift Language tab for suggested language and the foundation's official legal name and address.
• If you have a client ready to make or update a will, ask for our free Will and Estate Planning Guide. This value-added piece walks your client through the process and makes it as simple as possible.
• Encourage clients who have made or are considering making a gift in a will to let us know about their gift. We would like the opportunity to thank them and ensure their gift will be utilized as intended.

With a charitable beneficiary designation, a donor can make a simple future gift that costs nothing today.

Some clients may find that creating a gift they can change if they need to is a comfortable, powerful way to make a meaningful gift while keeping control of the gift property for life. The following assets can pass directly by beneficiary designation and not under a will:

• Life insurance policies
• IRAs and other retirement accounts
• Donor-advised funds (allowable for some DAFs, but not all)
• Bank accounts (through a payable-on-death or POD designation)
• Stock and mutual fund shares (through a transfer-on-death or TOD designation)
• Real estate (through a transfer-on-death or TOD designation, allowable in more than half of US states)

A charitable beneficiary designation works like this:

• The donor names the UMass Foundation to receive the remaining assets or proceeds at the time of their death. The donor can do this when they purchase the asset or set up the fund or account, or later using a change-of-beneficiary form.
• Donors can choose to name us as the sole beneficiary, a percentage beneficiary (along with one or more heirs or other charitable beneficiaries), or a contingent beneficiary (to receive the assets only if the primary beneficiary cannot).
• We have no rights to the asset/fund/account during the donor’s lifetime—we will only receive assets at the time of their death.
• The beneficiary designation is revocable, meaning the donor can remove or change it at any point during life.
• Some financial accounts or assets typically pass by will but can pass directly to a named beneficiary if the donor opts to complete a form to set up a payable-on-death (POD) or transfer-on-death (TOD) designation.

A will controls most property, but not all.

If your client would like to make a similarly easy, flexible, revocable gift of other assets not named here, they should consider making a gift in a will.

Evaluate the fit.

A charitable beneficiary designation may be a particularly good option for clients who:

• Want to make a substantial gift but don’t want to commit the assets right now
• Want the ability to continue to use the assets during life
• Want the peace of mind that comes from knowing they can change the size of the gift (or revoke it) if their needs or goals change

See how it works.

Example one. Years ago, when David’s wife died, he filed a Change of Beneficiary form on his life insurance policy, making his two grown children the primary beneficiaries and the UMass Foundation a contingent beneficiary (to receive the proceeds only if his children could not). Now, both children are married with families of their own and are doing well financially. David plans to leave other assets to them and makes the UMass Foundation the sole beneficiary of his life insurance policy. This allows him to meet his charitable goals while still retaining all his assets for use during retirement. In addition, he knows that if his situation changes, he can easily make another beneficiary change.

Example two. Carla adds a POD designation to her checking account and names the UMass Foundation as the beneficiary. She retains complete control of the account and can change the beneficiary designation again at any time during her life. While the FDIC insures her other accounts and CDs at the same bank for a combined total of $250,000, her POD account has its own $250,000 coverage. At Carla’s death, we must provide a certified copy of her death certificate to claim the money that remains in the account, which will then pass directly from the bank to us without going through probate.

Consider the timing.

Because no charitable deduction is available for this type of future gift, there is no rush to create or change a charitable beneficiary designation before year end. However, clients should regularly review their beneficiary designations and ensure that they are up to date.

The UMass Foundation can help.

We are happy to answer any questions about this gift option. If your client has already named us as the beneficiary of an asset or account, encourage them to let us know. We would like the opportunity to thank them and ensure their gift will be utilized as intended.

With a gift of life insurance, a donor has several options for making a substantial, cost-effective gift.

OPTION 1—a charitable beneficiary designation

A donor may find that naming the UMass Foundation as the beneficiary of their life insurance policy is a comfortable, powerful way to make a future gift that costs nothing today and provides the flexibility to make changes if needs or goals change. The donor can name us as the:

• Primary beneficiary
• Percentage beneficiary, along with one or more heirs or other charitable beneficiaries
• Contingent beneficiary, to receive the proceeds only if the primary beneficiary cannot

OPTION 2—make a tax-efficient gift of a policy

Does your client own a life insurance policy they no longer need for its original purpose? Perhaps they bought it to pay off the mortgage or cover college tuition expenses, but now their home is paid off and their children are grown. In this case, they may wish to make an immediate gift of their policy.

• A paid-up policy.  This is an easy gift to make. In many cases, the after-tax cost of this generous gift is only a fraction of the benefit we receive, and the gift qualifies for a charitable deduction (if the donor itemizes) equal to the policy’s replacement value or their basis in the policy, whichever is less.
• A policy that is not yet paid up. Whether this is a gift of an existing policy or your client plans to purchase a policy and transfer ownership to us, they can make annual, tax-deductible gifts to us to pay the premiums, or we can simply surrender the policy for cash.

OPTION 3—give a policy, receive an income

Your client may find that transferring a policy into a charitable remainder trust (CRT) provides many tax and financial benefits. The trust will pay an income to their beneficiaries for life. When the trust beneficiary dies, the remaining trust assets pass directly to the UMass Foundation. The donor receives an immediate income tax deduction for the present value of our remainder interest when they establish the trust.

Evaluate the fit.

A gift of life insurance may be a particularly good option for clients who:

• Want to make a substantial gift with a modest after-tax cost and no out-of-pocket expense
• Want the ability to change their gift if circumstances or goals change
• Bought a life insurance policy to cover expenses that are no longer an issue
• Would like both a tax deduction and a future income stream

See how it works.

Don bought a life insurance policy when his children were young to protect his family while the children were growing up and ensure that his wife could pay off the mortgage on their house. After many years, he realized the children were grown and successful, and the mortgage was paid off. Don decided to use the policy to meet his charitable goals. With a simple Change of Beneficiary form, he made his wife a 50% beneficiary and the UMass Foundation a 50% beneficiary. A decade later, after Don’s wife passed away, he had a year in which he could use a tax deduction to offset some of his unexpected taxable income. He decided to simply make an outright gift of the paid-up policy to us.

Consider the timing.

Clients who want to qualify for a tax deduction this year must complete an outright gift of a life insurance policy in December. Because no charitable income tax deduction is available for a beneficiary designation, there is no urgency on the timing (although clients should regularly review beneficiary designations to ensure they are up to date).

The UMass Foundation can help.

Ask us for more information about ways to use a life insurance policy to make a charitable gift, including the wealth replacement technique—a strategy that allows the donor to make a gift of appreciated assets now, receive tax benefits, and “replace” those donated assets for their heirs using life insurance proceeds.

If your client has already named us as the beneficiary of a life insurance policy, please let us know. We would like the opportunity to thank them and ensure their gift will be utilized as intended.

With a CGA, a donor can make a gift and receive a guaranteed stream of fixed income payments for life.

Your clients may find that one or more CGAs can be a rewarding part of their retirement plans. Consider the following:

• A donor can implement a CGA with a modest contribution of cash, stocks, or mutual funds.
• A donor can elect a payment arrangement that is convenient (typically, annually or quarterly).
• A donor qualifies for an immediate income tax charitable deduction for the gift part of the transaction (not the annuity part of the transaction), subject to AGI limitations.
• Donors who fund a CGA with appreciated assets may be able to spread out capital gains tax liability.
• Part of each annuity payment may be income tax free.
• The CGA provides a dependable lifetime income stream for the donor and/or a loved one (two people max).

The payment amount is based on:

• The amount of the gift (higher gift amount = higher payment amount)
• The age(s) of whoever will be receiving the payments (older annuitants = higher payment amount)
• When payments will begin (deferring the start of payments = higher payment amount)
• The current rates for charitable gift annuities

Sample one-life gift annuity rates, effective January 1, 2023.

Age 70  5.9%

Age 75  6.6%

Age 80  7.6%

Age 85  8.7%

Age 90  9.7%

Rates are subject to change.

OPTION 2—a deferred CGA

This is an easy way to make a gift now but start receiving payments at a specified future date. You can time payments to retirement while locking in a higher income payment compared to an otherwise-similar immediate CGA.

• The donor selects a payment start date at least one year in the future.
• The gift still qualifies for an immediate income tax deduction.

OPTION 3—a flexible deferred CGA

This is simply a deferred CGA with an unspecified future start date. It allows a donor to postpone the decision on when to begin receiving payments within a predetermined time frame.

• The immediate deduction will be based on the earliest possible start date.
• The annuity rate increases with each year payments are deferred.
• Payments will begin automatically at the end of the time frame if the donor hasn’t yet asked for them to begin.

This added flexibility is particularly useful for those who:

• Want to begin payments at retirement but haven’t yet chosen a retirement date
• Face a future expense without clear timing (such as the anticipation of needing to pay for a relative’s nursing home care at some point in the future)
• Want to maximize their annuity rate (and therefore payment amount) by waiting but are concerned they may need to begin receiving payments earlier

Evaluate the fit.

CGAs may be a particularly good option to consider for those who:

• Are retired or near retirement
• Want to establish a source of fixed income payments to supplement other income streams in retirement
• Want to establish a source of fixed income for a loved one
• Could use a current charitable income tax deduction
• Would like to get rid of appreciated assets but don’t want to pay the associated capital gains tax
• Own an IRA (age 70½ or older) and wish to make a one-time distribution to create a CGA
• Are comfortable funding the CGA with a minimum of $10,000

See how it works.

Example one. Susan makes an irrevocable gift of appreciated stock using a charitable gift annuity. In return, the UMass Foundation agrees to make lifetime annuity payments to Susan based on her age, the gift annuity rate, and the gift amount. Susan enjoys favorable taxation—part of each payment is tax-free return of principal, part is long-term capital gain, and the remainder is taxed as ordinary income.

Example two. Andy (age 58) doesn’t need additional income right now, but he would like to reduce his current income tax liability and supplement his future retirement income. He selects a deferred charitable gift annuity. He makes an irrevocable gift, and in return, the UMass Foundation agrees to make lifetime annuity payments to Andy beginning in 10 years. Delaying the start of payments increases his annuity income and qualifies for a larger tax deduction.

Consider your timing.

If your client wants to qualify for a charitable deduction this year, they should have the CGA application and contribution to us by mid-December.

The UMass Foundation can help.

Ask us for one or more complimentary illustrations to help you estimate your client’s potential deduction, income payment amount, and tax impact.

With a donor-advised fund (DAF), a donor can make a gift now, receive a current income tax deduction, and retain the flexibility to recommend gifts later when the time is right.

Clients may find that using a DAF provides a simple, meaningful way to benefit the UMass Foundation and other charities they support. Consider the following:

• A donor establishes a DAF with a single donation and can make additional donations later if they wish. Most DAFs will accept assets beyond cash and securities, sometimes including real estate, cryptocurrency, or closely held stock.
• The donor-advised fund then owns those assets and administers the fund—your client no longer needs to manage the money
• This arrangement allows the donor to qualify for an immediate charitable income tax deduction for the amount contributed to the DAF, even though the money hasn’t been distributed to charity yet.
• The donor retains advisory privileges, meaning that at some point in the future, they can recommend (but not require) gifts to be distributed to specific charities.

Evaluate the fit.

Donor-advised funds may be a particularly good option for clients who:

• Want to make a large, tax-deductible contribution this year to offset increased income
• Haven’t yet fully established their charitable goals and would like flexibility in making future gifts
• Would find it beneficial to segment their charitable funds from their other assets
• Would like to donate a more complex non-cash asset that the UMass Foundation (or another intended charitable recipient) cannot accept

See how it works.

Five years ago, Steve earned a significant year-end bonus. He knew he wanted to use that money for a charitable purpose, but he wasn’t yet sure where he wanted to have an impact, and he had little time to decide. He chose to donate the full amount to a DAF, which ensured an immediate and much-needed charitable income tax deduction. The DAF invested the assets and retained ultimate authority over any distributions.

This year, Steve’s nephew graduated from UMass and landed a great job. Steve uses his advisory privileges to recommend a grant from the DAF to us to help fund student internship programs going forward. The DAF distributes the recommended gift to the UMass Foundation (they are not obligated to do so, but in most cases, they will follow Steve’s recommendations).

Consider your timing.

If your client wants to qualify for a charitable deduction this year, they should initiate their gift by mid-December.

The UMass Foundation can help.

Ask us for more information about donor-advised funds and grants to the UMass Foundation.

Charitable remainder trusts provide income payments before passing remaining assets to charity.

A donor may find that while there is slightly more effort and expense involved in setting up a trust, it can be an extremely useful and flexible way to:

• Reduce income taxes
• Convert appreciated assets into a lifetime income stream
• Bypass the capital gains tax
• Benefit the UMass Foundation and other personally meaningful charities
• Make a gift now or in a will

It works like this:

• The donor transfers money or property to the irrevocable trust (often non-producing appreciated property held for over one year), removing the property from their estate.
• The donor pays no capital gains tax on the transfer.
• The donor qualifies for an immediate income tax deduction (if they itemize) for our estimated remainder interest.
• The donor names the income beneficiaries—they can direct income to themselves, a spouse, or anyone else they choose.
• The trustee manages the assets and pays out an income for life or for a set number of years (up to 20) to the named beneficiaries. Income payments typically equal 5% of the trust value, but the donor can set the amount within legal limits.
• At the end of the trust term, the trust pays out the remaining assets to the UMass Foundation (or other named charitable beneficiaries).

Comparing a CRAT and a CRUT

As noted above, there are two main types of charitable remainder trusts—a charitable remainder annuity trust (CRAT) and a charitable remainder unitrust (CRUT). There are two main differences:

• Income payments. A CRAT offers a fixed payment that is a percentage of the initial assets in the trust. This provides a steady, reliable income stream and can be a good way to lock in a high interest rate. A CRUT offers a variable payment amount that is a percentage of the trust assets as revalued annually. This serves as a hedge against inflation.
• Flexibility. A CRAT comes in just one form and cannot accept additional contributions. A CRUT is more flexible—it comes in four different types and can accept additional contributions.

A new funding option

Note that an IRA owner age 70½ or older can choose to fund a new CRT by making a one-time, tax-free distribution from the IRA of up to $50,000 (in 2023). (Spouses may combine their distributions from their own IRAs into a single $100,000 CRT, which is useful as this is often the minimum funding level.) This distribution does not create a charitable income tax deduction, but it does count toward the donor's required minimum distribution if one is due. A CRT created this way has slightly different rules than regular CRTs.

Evaluate the fit.

A CRT may be a particularly good option for those who want to:

• Make a major gift and gain immediate income tax benefits, all without a loss of spendable income
• Make a significant property gift but don’t want to lose the income produced by the asset
• Convert an appreciated asset into an income stream

Older donors interested in the steady income of a charitable remainder annuity trust should compare the trust with a charitable gift annuity, which may be able to provide higher income payments.

A Give-it-Twice Trust

Donors who want to provide for their family and the UMass Foundation after death might consider a CRUT created in a will—technically a testamentary CRUT, but often called a “give it twice” trust. It works like this:

• The donor includes provisions in their will to create and fund the CRUT (many people fund the trust by simply naming the trust as the beneficiary of their retirement accounts).
• When the donor dies, the selected assets will go into the trust and the donor’s spouse, children, or other named beneficiaries will receive income payments for life (or a period up to 20 years).
• At the end of the trust term, the remaining trust assets will be distributed to the UMass Foundation.

Consider the timing.

If your client wants to qualify for a charitable deduction this year, they should initiate the transfer of the assets to the trust as early as November to ensure everything is properly established by the end of the year.

The UMass Foundation can help.

Talk to us about how your clients can tailor a charitable remainder trust to meet their personal or family needs. We can also provide you with the estimated deduction amount that would be available for a particular gift (the amount depends partly on the applicable federal rate, which changes every month), as well as the estimated income payment amount.

Charitable lead trusts provide annual payments to the UMass Foundation before passing remaining assets to the donor’s family or other named beneficiaries (or even back to the donor).

Clients may find that while there is slightly more effort and expense involved in setting up a trust, it can be an extremely useful and flexible way to:

• Provide significant support for UMass over time
• Reduce or even eliminate the taxes customarily due on the transfer of wealth to loved ones
• Qualify for a deduction for gift and estate tax purposes
• NOTE: Creating a charitable lead trust during a period of low interest rates will mean even greater savings in transfer taxes

A charitable lead trust (CLT) works like this:

• The donor transfers money or property to the irrevocable trust (often marketable securities with strong growth potential).
• The donor names the UMass Foundation as the charitable income beneficiary and chooses who will receive the remaining assets at the end of the trust term.
• The trustee provides careful asset management and pays out annual gifts to us for a set number of years or for the donor’s lifetime. Gifts can be a fixed dollar amount or a fixed percentage of trust assets as revalued each year.
• At the end of the trust term, the trust pays out the remaining assets to the donor’s family members. (The donor can choose to receive the remaining assets, but this type of trust is less common and has different tax treatment.)

What are the tax benefits?

• Pass more wealth to loved ones. The assets in a charitable lead trust may increase in value over the course of the trust term—possibly by a significant amount. If so, no tax is due on the appreciation.
• Minimize estate and gift taxes. The size of the deduction for gift and estate tax purposes is based on the amount paid to charity, the length of the trust term, and the applicable federal rate at the time the donor establishes the trust.

Evaluate the fit.

A CLT may be a particularly good option for clients who want to:

• Pass more wealth to heirs and are comfortable enough to make a substantial financial commitment over a long period of time
• Make an extended impact on the UMass Foundation with significant annual gifts
• Minimize gift and estate taxes

See how it works.

Jackie transfers stock with strong growth potential into a CLT. The trust makes annual payments to the UMass Foundation for the rest of Jackie’s life. When Jackie passes away, the remaining trust assets pass to her three grown children in equal parts. Since the value of the remainder interest is calculated at the time she created the trust, the children are not taxed on the stock’s significant appreciation over the many years it was held in the trust.

Consider the timing.

Because a CLT does not qualify for an income tax deduction, a donor can create the trust at any time.

With a gift of real estate, donors have several options for making tax-efficient gifts using property they may otherwise be inclined to sell.

OPTION 1—an outright gift of appreciated property

This can be a straightforward and tax-wise way for a client to meet multiple planning goals. It works like this:

• The donor obtains a qualified appraisal of the property. (This is necessary to establish the property’s fair market value.)
• The donor gives the appreciated property to the UMass Foundation within 60 days of the appraisal.
• The gift qualifies for an income tax charitable deduction (if the donor itemizes) for the property’s full fair market value. The donor’s deduction in any one tax year is limited to 30% of adjusted gross income, but any unused deduction amount can be carried over for up to five years.
• The donor will owe no capital gains tax on the property (as they would have with a sale).

What about mortgaged property?

Mortgaged property tends to be a problematic gift asset. Usually, the best solution is for the donor to pay off the mortgage before donating the property. If this is your client’s situation, reach out to us to discuss the best way to proceed.

OPTION 2—a bargain sale

Clients who are ready to dispose of a property but aren’t in a position to give it away may find this option useful. A bargain sale is part gift and part sale and, therefore, provides both a current income tax deduction and proceeds from the sale of the property. It works like this:

• The donor sells the property to the UMass Foundation for less than its full fair market value—for example, a donor might sell the Foundation a property appraised at $500,000 for only $200,000.
• In the above scenario, the Foundation would pay the donor the $200,000 sale price, but the donor would also make a $300,000 gift to the UMass Foundation.
• The gift portion qualifies for an income tax charitable deduction.
• The donor owes no capital gains tax on the gift portion.

OPTION 3—a gift of a remainder interest

A client who could use an income tax deduction now but would like to continue to use and/or occupy the personal residence or farm for life should consider this option. It works like this:

• The donor enters into an arrangement with the UMass Foundation under which the property will be irrevocably transferred to the Foundation at the time of the donor’s death.
• The donor retains a “life estate” that ensures the right to live on or use the property throughout the donor’s lifetime.
• Even though the gift doesn’t actually take place until later, because it is irrevocable, the gift qualifies for an immediate income tax deduction for the discounted present value of our future interest in the property (essentially, the value of the land and improvements reduced by the value of the donor’s lifetime use of the property).
• After making a gift of a remainder interest, if the property is no longer needed, the donor may choose to donate the life estate and receive an additional charitable deduction at that point. (Note that there will be issues with this option if it appears to the IRS that the donor planned to do this all along.)

OPTION 4—a gift to establish a charitable remainder trust

A client who holds a property they no longer want to own and who is interested in establishing an income stream to supplement other forms of retirement income should consider this option. It works like this:

• The donor uses the property to establish a charitable remainder trust (CRT).
• The trustee (which could be the UMass Foundation) is able to sell the property without incurring any capital gains tax.
• The trustee can then invest the sale proceeds and use the money to make regular income payments to the donor and/or the donor’s named income beneficiaries for life or for a stated term of years.
• At the end of the trust term, the remaining trust assets will pass to the UMass Foundation.

Evaluate the fit.

A gift of real estate may be a particularly good option for those who:

• Own appreciated property (residential, commercial, or undeveloped land) they no longer wish to use or maintain
• Would like to get rid of their property in a way that reduces or even eliminates the payment of any capital gains tax on the appreciation
• Could use a charitable deduction
• Want to use their property to establish an income stream
• Are willing to put in a bit more time and effort in order to use this asset to meet both financial and charitable goals in a tax-efficient manner

See how it works.

Example one. Scott and Robin’s vacation cottage, once a family joy, has become a burden. They thought about selling the property and giving the proceeds to the UMass Foundation, but when they learned that we would accept the cottage as an outright gift, it was an ideal solution. Scott and Robin itemized in order to receive a tax deduction (with a qualified appraisal), eliminated the cost and hassle of a sale, and owed no capital gains tax on the property’s significant appreciation. The UMass Foundation then sold the cottage and put the full amount of the proceeds to work supporting UMass.

Example two. Maria paid $100,000 for land that is now worth $500,000—property she no longer wants. After discussions with us and her attorney, Maria decides to sell it to the UMass Foundation for $300,000. She receives some much-needed cash and makes a gift of the remaining $200,000. No capital gains tax is due on the gift portion, and she qualifies for a charitable income tax deduction for the full $200,000 gift amount.

Consider the timing.

If a client wants to qualify for a charitable deduction this year, they should plan to begin the process no later than early November, as real estate gifts can take some time to complete.

The UMass Foundation can help.

We are happy to discuss the details of a client’s planned real estate gift. We will ensure that the gift property is marketable and that we are able to accept it. If the property is a good fit, we can work with you and your client to:

• Explore the options mentioned here, along with other gift ideas (for example, gifts of oil or water rights, qualified conservation contributions, funding for a donor-advised fund, etc.)
• Ensure that your client’s gift meets all legal requirements (failing to meet all legal requirements can result in the loss of important tax benefits)

Keep in mind that we will need to conduct a title search and property inspection, and the donor will need to obtain a qualified appraisal if they wish to claim a charitable income tax deduction for the gift.

Gifts of tangible property may provide larger capital gains tax savings than other long-term appreciated property (assuming it is something the UMass Foundation can use for our charitable exempt purposes).

Tangible personal property includes items such as:

• Artwork
• Antiques
• Jewelry
• Rare book collections
• Collectibles
• Cars

A gift of tangible personal property works like this:

• You and your client will likely want to begin by talking with us about the proposed gift to determine if it is something we can accept and, if so, if it will be used for our charitable exempt purpose.
• The donor will obtain a qualified appraisal for their gift item(s).
• The donor makes an outright gift of tangible personal property to UMass.
• The gift qualifies for an immediate income tax charitable deduction for either the full fair market value (if we can use it for our charitable purposes) or for the donor’s cost basis in the property.
• Assuming the property has appreciated in value, the donor owes no capital gains tax on the donated property—a significant savings since collectibles are taxed up to 28%, versus appreciated real estate or securities, which are only taxed up to 20%.
• The UMass Foundation will either keep the property for the use of one (or more) of the campuses or sell it and use the proceeds to further the university's mission.

Other ways to give tangible personal property

• A bargain sale. It may be possible for a donor to make a bargain sale of their tangible personal property. In other words, they sell it to us for less than its actual fair market value, meaning they get both proceeds from the sale and an income tax charitable deduction (and possible capital gains tax benefits) for the gift portion of the transaction.
• A gift in a will or living trust. A donor could also choose to keep their property during life and donate it to us at death through a gift in their will or living trust.

Evaluate the fit.

A gift of tangible personal property may be a particularly good option for those who want to:

• Minimize or eliminate the capital gains tax due on appreciated collectibles
• Qualify for an immediate income tax deduction
• Make an extended impact on the UMass Foundation with a gift that we can use or sell

See how it works.

Kyle calls us to discuss donating a rare collection of books. If we can use the book collection for our tax-exempt purpose, Kyle’s gift will qualify for a deduction for the full fair market value of the collection. If not, he can deduct only his cost basis in the collection. Kyle obtains a qualified appraisal on the collection and makes the gift, not only benefiting from the deduction but also bypassing any capital gains tax he would have owed if he had sold the collection.

Consider the timing.

It may take some time for us to determine if and how we can use the donated property and for the donor to obtain a qualified appraisal. If your client wants the deduction this year, it is best to start the process as early as possible.

The UMass Foundation can help.

We are happy to discuss any items your clients may wish to donate. We can determine how they will be used, what the donor’s benefit will be, and how long it may take to complete the gift process.

A charitable gift of cryptocurrency is treated similarly to a gift of appreciated stock, with the same potentially powerful tax benefits. At this time, the UMass Foundation does not accept gifts of cryptocurrency.

Cryptocurrency is a decentralized digital currency used by millions of people worldwide. If your client is one of them, they may own cryptocurrency that is currently worth much more than they paid for it. If so, and if they’ve held it for more than one year, giving cryptocurrency lets them make a big impact for a relatively low cost. Consider the double tax benefit:

• The donor may qualify for an immediate income tax charitable deduction for the full value of the cryptocurrency if they itemize.
• The donor owes no capital gains tax on the appreciation.

A qualified charity will immediately convert the donated digital currency into cash and put it to immediate use. It will be directed to the area of greatest need unless the donor specifies a particular program or area they would like to support.

Tax notes

• A gift of cryptocurrency held for more than one year may be deductible for up to 30% of the donor’s adjusted gross income. Any excess deduction can be carried over for up to five years.

• A gift of cryptocurrency over $5,000 requires an appraisal that must be reported on IRS Form 8283.

Check with the intended recipient.

There are many different digital currencies available. Each charitable organization will have its own list of currencies that it will accept as donations, so you should check with the organization before proceeding with a gift. Note that the UMass Foundation does not currently accept donations of any digital currency.

OPTION 2—funding a donor-advised fund with cryptocurrency

Another charitable option may be for the donor to transfer cryptocurrency to a donor-advised fund (DAF). Not all DAFs accept cryptocurrency, so confirm the viability of this approach before advising your client to transfer any digital currency from a digital wallet to a DAF.

Evaluate the fit.

Cryptocurrency held for more than one year may be a particularly good gift option for those who:

• Own appreciated digital currency
• Want to bypass the capital gains tax on the significant appreciation
• Want to qualify for a federal charitable income tax deduction for the full amount of the gift

See how it works.

For the past few years, Liam has given a check to his favorite charity for $10,000. This year, he realizes that the cryptocurrency he purchased three years ago as an investment has significantly increased in value. He decides to give the charity digital currency worth $10,000 that he purchased for $1,000. If Liam itemizes, he may be eligible to take a deduction for the full $10,000, even though $9,000 of it has never been taxed. In his 37% tax bracket, the tax savings are substantial.

Gift of Cash

• Liam’s gift $10,000
• Income tax savings (37% tax bracket) $3,700
• Capital gains tax savings (23.8% of $9,000) $0
• Tax savings generated by Liam’s gift $3,700

Gift of Cryptocurrency

• Liam’s gift $10,000
• Income tax savings (37% tax bracket) $3,700
• Capital gains tax savings (23.8% of $9,000) $2,142
• Tax savings generated by Liam’s gift $5,842

Consider the timing.

Donating major cryptocurrencies can be as fast as donating cash, meaning your client could donate on December 31 and still qualify for a charitable deduction this year. For smaller, less liquid cryptocurrencies, you should check with the organization first to see if they can accept the donation, meaning your client should initiate the donation process earlier in December.

A gift of an appreciated business interest held for more than one year may be well suited to a successful business owner reaching retirement who wants to meaningfully support our work while obtaining a double tax benefit.

A gift of a business interest works like this:

• Working with counsel, the donor determines if any restrictions (in the entity documents or state statutes, regulations, or ordinances) would limit how ownership of the business can be transferred.
• The donor discusses the desired gift with us to ensure we can accept it. Some gifts may be more difficult than others (for example, a business interest that results in unrelated business taxable income can pose a significant obstacle).
• The donor conducts any relevant review that might be required. For example:
• Conduct a Phase I or Phase II environmental report on business-owned real property
• Ensure that the corporation’s assets, both real and tangible, are free of liens with issues
• Ensure there are no clouds on the title to real property
• Ensure there is no pending litigation (or known potential claims) against the corporation
• The donor obtains a qualified appraisal of the business interest.
• The donor transfers the entire business interest to the UMass Foundation.
• The gift qualifies for a charitable income tax deduction for the fair market value of the business interest at the time of the gift (assuming the donor itemizes).
• The donor bypasses any capital gains tax that would have been due on a sale of the business interest. This can be a highly significant benefit, assuming the business interest has a low cost basis and substantial appreciation.

Consider that a gift of an interest in a C corporation is the most straightforward. S corporations have more to consider, and interests in partnerships or LLCs require consideration of a number of practical issues.

Caution

A donor should use extreme caution if they plan to donate a business interest while negotiating a sale of the business. If negotiations have proceeded to a point where the IRS considers it a prearranged sale, they may be required to pay capital gains tax when the UMass Foundation sells the interest.

Donating a partial interest

In most cases, the donor must irrevocably donate the entire interest to qualify for a deduction. However, if the donor wishes to make a partial interest gift, there are three exceptions that will still qualify for a deduction:

1. A contribution of a remainder interest in a personal residence or farm

2. A contribution of an undivided portion of your entire interest

3. A qualified conservation contribution

Using a donor-advised fund (DAF)

Donating a business interest to a donor-advised fund offers the same double tax benefit as an outright gift and may be an easier transaction. Many DAFs have the resources and expertise to handle this type of asset, from evaluation to processing to the ultimate sale of the asset.

Evaluate the fit.

A gift of a business interest may be a particularly good option for clients who are considering selling a business if they want to:

• Meet significant philanthropic goals
• Qualify for a double tax benefit—a charitable income tax deduction (if they itemize) and no capital gains tax on the appreciated value of the business interest

See how it works.

Claire owns a successful business with privately held stock. Her cost basis is $0, and the stock is currently valued at $27 million (based on a qualified appraisal). Claire decides to use $9 million of stock to support the UMass Foundation. She could sell the shares (subject to capital gains tax and possibly net investment income tax) and donate the proceeds. However, her advisor recommends considering a direct donation of the stock, which would mean bypassing taxes and making a more substantial gift.

Claire knows several investors who are greatly interested in the stock, but she has not begun any substantive discussions about a sale, nor has she entered into any type of agreement to sell the stock.  Claire works with us, her legal counsel, and her advisor to directly donate the stock.

Sale then Donation

• Value of Stock $9,000,000
• Capital Gains Tax (20%) $1,800,000
• Potential Net Investment Income Tax $342,000
• Actual Gift Amount $6,858,000

Direct Donation to Charity

• Value of Stock $9,000,000
• Capital Gains Tax (20%) $0
• Potential Net Investment Income Tax $0
• Actual Gift Amount $9,000,000

By donating the stock directly to us, Claire increased her gift by $2,142,000. Following the donation, the UMass Foundation initiates discussions with the interested investors to arrange a sale of the stock.

Consider the timing.

A gift of a business interest is complicated and requires many steps and the involvement of many different professionals. If your client wants to ensure that the tax benefits fall within a particular year, they should start the process as early as possible.

The UMass Foundation can help.

Start with us. An initial productive discussion about your client’s business interest and goals is imperative to the ultimate success of the gift.

A gift to an endowment fund is one of the strongest ways for a donor to maximize charitable impact.

A donor may find that an endowment gift is the best way to support our mission on a long-term  basis. It is a particularly powerful way to sustain our work because:

• It provides support during times of change and challenge.
• It facilitates long-term planning and program expansion.
• It can ensure the continuation or establishment of a particular program or area.

An endowment gift works like this:

• The donor gives money or property to create an endowment fund now, or makes a gift to establish an endowment fund in their will or trust or through a beneficiary designation. The donor can even create or contribute to an existing endowment fund by setting up a charitable gift annuity that first provides a fixed lifetime income for the donor and/or someone else (two people maximum).
• The donor chooses a fund established to support a meaningful program or scholarship or a fund that supports our general mission.
• The gift qualifies for a charitable income tax deduction (assuming the donor itemizes).
• The endowment fund combines that gift with the gifts of others, utilizing professional asset management to invest for growth.
• Only the income (or a stated percentage of the income) from the fund is used each year to support the designated program or area, meaning the gift becomes perpetual and self-renewing. This increases the donor’s impact and helps us accomplish our mission far into the future.

Establishing an endowment fund

Contributing to an existing endowment fund is an easy and meaningful way for a donor to make a lasting impact—but it’s not the only way. If your client would like to make a legacy-creating gift with an outright cash donation or with a significant gift in their will, they can create their own endowment fund. This gives the donor the freedom to support and sustain the area that is most meaningful to them. If your client would like to consider creating an endowed fund, please reach out to us so we can start a conversation about how to best help them meet their charitable goals.

Evaluate the fit.

A gift to an endowment fund may be a particularly good option for those who want to:

• Qualify for a charitable income tax deduction
• Ensure the continuation of a particular part of our mission (say, a specific program, area, or scholarship)
• Make a lasting impact on the UMass Foundation
• Help ensure that we have a steady level of support that can help us remain fully active during difficult economic times

See how it works.

Naomi, age 80, has given regular annual gifts of $1,000 to one of the UMass campuses since she retired at age 65. This year, however, she’s been thinking about her legacy. She decides to make a $25,000 gift to establish a scholarship endowment fund in memory of her late husband, Ken. Not only will her gift generate approximately the same annual donation ($1,000, assuming fund earnings of 4%), but Naomi knows the fund will grow over time and her gift will help sustain something that meant a lot to Ken.

Because she is also passionate about UMass, Naomi talks to her family and friends about her gift. Several of them make their own contributions to the endowment in Ken’s memory, creating an even more powerful and lasting impact.

Consider the timing.

While a donor can contribute to an existing endowment fund easily at any time, creating a new fund will take longer.

The UMass Foundation can help.

We would love to help you and your clients determine the best way to provide long-term support for the parts of our mission that mean the most to them. Please reach out to start a discussion!

A blended gift is as versatile as it comes—any combination of two or more gifts (most often an immediate gift combined with a future gift) that provide us with powerful support and provide the donor with the combination of benefits that works best for their situation.

A blended gift works like this:

• The donor reviews their assets and their charitable and financial goals.
• The donor decides on the combination of gifts that will best accomplish their goals and make the best use of their available assets.
• The selected gifts help ensure the continuation and success of our educational mission.

Evaluate the fit.

A blended gift may be a particularly good option for those who want to:

• Enjoy seeing a current gift making a difference today while also having the satisfaction of implementing a future gift that is perhaps larger than what they’re able to give right now.
• Tailor gifts to meet specific needs, since each type of asset can have a different impact on taxes as well as on personal planning, goals, and needs.

See how it works.

Example one. Mia consistently supports the UMass Foundation with annual gifts. Now retired, she is pleased that she can make her annual gifts directly from her IRA to us. She pays no tax on the distributions, which count toward her required minimum distribution amount. This year, Mia decides to take her giving one step further and name the UMass Foundation as the beneficiary of her IRA. The funds are still available to her during her lifetime, but at death, whatever remains in the IRA will become a gift to support our mission.

Example two. Connor has enjoyed investment success and owns substantially appreciated stock. Connor donates stock valued at $50,000 to the UMass Foundation. He pays no capital gains tax on the stock’s appreciated value and qualifies for an immediate charitable income tax deduction. Connor wants to make a much larger gift but hesitates because he is uncertain what the future might bring. He chooses to make a second gift to us in his will, leaving us 50% of his estate, with the other 50% going to his grown son.

Consider the timing.

For a blended gift, the choice of assets and gift strategies will typically determine the timing of the gift.

The UMass Foundation can help.

Blended gifts are unique. In fact, they are as unique as each donor is. We are happy to provide more information or have a discussion with you and your client to explore which combination of gifts might provide the greatest benefits.