Few gifts make as significant an impact as the gift of education. Education lasts a lifetime and is the foundation for a solid career and livelihood.
There are many different options for a parent, grandparent, relative, or friend to invest money now so that his or her loved one will have a secure educational future. Planned giving can offer a solution as well.
An individual or family with highly appreciated assets might consider a charitable education unitrust. Selling the asset outright to pay for education expenses could result in paying federal and state capital gains tax and potentially subject you to higher tax rates. A charitable education unitrust, on the other hand, might be attractive if you want to help with someone’s future education costs, need a tax deduction in the current tax year, do not need income from the trust and desire to make a gift to Purdue University.
You simply transfer the asset to Purdue University establishing a charitable remainder unitrust (CRUT) and the principal grows in the Purdue University endowment pool. Once you opt to begin receiving income from the CRUT, the money can be used to pay for college, graduate school, or other educational programs.
Suppose Grandma and Grandpa Boiler have highly appreciated securities valued at $100,000 and their cost basis is $50,000. By transferring the asset into a charitable education unitrust, they immediately bypass any capital gains and receive a charitable tax deduction in the current year. The Boilers set up the trust for a term of five years in the year before their grandson, Pete, starts his freshman year at Purdue. Assuming 7% growth and a 10% payout from the trust, Pete, the trust’s beneficiary, receives $10,000 to cover his in-state tuition during his first year of college. Payments for the remaining three or four college years are valued at 10% of the trust. (Note that Kiddie Tax rates apply.) The Boiler’s avoided paying capital gains on the securities and received a tax deduction in the amount of $59,822 in the year they established the trust. They are helping to fund Pete’s college tuition costs and meet their philanthropic goal of making a significant gift to Purdue.
Please discuss this opportunity with your own professional advisors with the understanding that the information provided herein is not intended as legal, accounting, tax, investment or other professional advice.