Contents

The Best Laid Plans… (Autumn 2003)

The Importance of Annual Gifts (Autumn 2002)

Appreciated Stocks (Spring 2002)

Estate Tax Phase Out (Fall 2001)

Got IRAs? (Fall 2000)

The Best Laid Plans…
("Gift Rap," Cascade, Autumn 2003)

Wise But Not Wealthy
The Importance of Annual Gifts
("Gift Rap," Cascade, Autumn 2002)

Dear Gift Rap: Every time I read your column, you talk about gifts of stock or real estate—big gifts that, frankly, I’m in no position to make. Nevertheless, I’m a loyal alum who’d like to give something back to my alma mater. How can my gifts of $250, or even $500, have the greatest impact?

Dear Interested: You’ve made my day! Your intentions are both generous and extremely valued. Let me explain.

Every year through our Annual Giving Program, alumni like you give something on the order of $300,000 to the various departments, programs, and special projects under the CAS umbrella. In academic year 2001-02, over 3,200 contributed.

Annual gift donors play an important role in providing our forty-four departments and programs with directed or discretionary dollars to help support teaching and research in focused ways. As direct funding from the state continues to decrease, your gifts assist our students and faculty in carrying out the important business of higher education. For example, the Economics department uses annual gifts to bring visiting professors to campus; Romance Languages augment several smaller scholarship funds with gift dollars; Chemistry helps support peer tutors and undergraduate poster sessions at which students present their research. Our academic community is sustained in myriad ways through your generosity.

In addition to department and program giving, many of our CAS alumni designate their gifts for the highest priorities of the liberal arts and sciences. The dean of the college uses these contributions to underpin the broader instructional and research agenda and also to help promote additional participation by alumni. For the past several years, unrestricted gifts have been used to launch innovative curriculum across the college, such as the Professional Distinctions Program that began just last year.

Aggregate annual support of CAS is an essential component in building a funding package for all the parts of our academic unit. You can’t have the aggregate without the individuals who make up the whole. Please know that we’re very grateful for the assistance.

For more ideas about making annual gifts,
please see 10 Ways to Make a Difference.

Appreciated Stocks
How Can I Be So Rich and Feel So Poor?
("Gift Rap," Cascade, Spring 2002)

Dear Gift Rap: In calendar 2000, I made charitable gifts using some highly appreciated tech stocks. Since then, many of those stocks have tanked! While I have maintained a relatively diversified portfolio, the overall loss of value to it has been significant. I still want to make charitable contributions to the UO, but don’t know if stock is still the gift vehicle of choice anymore. What are you hearing from other people?

Dear Drain: First, thank you for your prior giving and for your intention to continue as a donor. You represent that solid gold cohort of alumni and friends whose annual gifts help us to maintain the quality of teaching and research we have come to expect at the UO.

Second, let’s address your concern about using stocks to make gifts. One of the folks on campus who keeps track of stock gift transactions has confirmed that such gifts in aggregate were down for the busy season between September and the end of December. This has clearly been the case across the charitable giving sector.

However, there are still many people taking advantage of this very efficient way to make charitable gifts. Indeed, among the stock brokers with whom we typically do business, most made their charitable gifts using appreciated stock again in 2001. And they encourage their clients who have gift intentions to do the same.

Although the markets are down, many people purchased stock several years ago and have seen significant appreciation in individual stocks from the time they bought them. Many stocks soared during the boom years, and subsequently fell back from their high points. Nevertheless, a lot of these same stocks have a far greater value than their original purchase price.

Here’s an illustration: you bought ZipCo stock for $10 a share in 1985. By 2000, it had split twice and was selling at $85. But, its value dropped precipitously during 2001; it’s now selling at $50. But look: you now have perhaps 4 times the number of shares that you started with, and each one is worth $40 more than what you paid for it! You have been thinking of starting a scholarship fund or a faculty retention fund at the UO, and were going to do so with a gift of $25,000. If you sold your ZipCo stock to create the cash for such a gift, you’d have to pay tax on the difference between what you paid for the stock and it’s current sale price (500 shares x $40 per share x 20% long term capital gain = $4,000). By transferring the shares to the UO Foundation, you would get a tax deduction for the fair market value of the stock and you pay no capital gain tax on the transaction.

It’s not too early to begin planning your charitable gifts for 2002, and to consider what kind of assets you will use to make your gifts. For many people, a direct transfer of appreciated stock or mutual fund shares is still a very efficient way to make charitable gifts. But the key word here is planning. You may want to evaluate your portfolio and discuss your intentions with your broker, financial advisor, or accountant.

Dear Gift Rap: The formerly amazing stock markets of not long ago gave me a great tool for making gifts to my favorite charities, the UO being top of my list. I had created a special portfolio of stocks to give me some extra income and to build a nice equipment fund for the UO’s biology department. Ultimately, the UO will get the remainder of the portfolio when I die. At present, it’s worth about $250,000.

Since the markets have stopped soaring, I’m wondering if you have some ideas about how I can use my “UO Stock Fund” over time to make my gifts, get some income, and perhaps keep the principal from eroding too much.

Dear Pondering: The preceding illustration offered a great opportunity to suggest planning an annual strategy for making charitable gifts. You have taken this notion several steps further by developing a long term gift plan. In executing the plan you have already benefited the UO, and for this we are very grateful. However, it sounds like you’re wondering what you can do to continue the plan given a downturn in the market that might have an adverse impact on your ultimate gift to the UO.

A charitable trust, established with the University of Oregon Foundation (UOF), could be the way to continue with your plan in full measure. The UOF will convert your stock to a fund that will pay you income for the rest of your life. By giving the stock to the UOF, you will avoid paying the gains taxes you would have incurred had you sold the stocks yourself. While you will have to pay regular income tax on the distributions you get from the trust, you may well mitigate these by making your annual gifts to the biology department.

There are additional benefits as well

• you will get a tax deduction in the year you establish the charitable trust

• you can choose fixed amount trust payments, or variable payments that will be tied to the performance of the trust investments

• the final distribution to benefit the biology department may well exceed your original intentions

It’s important to note that the formula for figuring income and tax deduction is dependent upon your age and a few other criteria. As with any such vehicle, it’s always important to consult with your own financial advisors before signing away your assets.

Estate Tax Phase Out
By Terri Krumm, Director, UO Office of Gift Planning
("Gift Rap," Cascade, Fall 2001)

Dear Gift Rap: I’m 58 and my wife is 56. Over the past several years, we have enjoyed sharing our good fortune with our alma mater, the UO, and would like to continue doing so. Our goal is to make a lasting difference for the Department of Geography. We were planning to do this via our wills. Does that still make sense with the estate tax phase out and repeal? Is estate planning a thing of the past? What should we be concerned with now?

Dear Planning: You raise some good questions. Even with a repeal of the estate tax, estate planning will still be necessary because, under the new law, the tax burden will be shifted from the estate to the heirs. Congress has legislated for the repeal of the estate tax three times in the past, yet those laws were defeated before they could be enacted. The estate tax repeal provision calls for a phase-out of the estate tax during the years 2002 to 2010. In 2010, Congress must re-enact the law for it to continue to be effective.

Here is a chart of the phase-out schedule:

The effect of the repeal of the estate tax:

In the year 2010, property inherited by heirs in excess of the exemption amounts will be subject to capital gains tax when it is sold. Under the previous law, the heirs received the assets on a "stepped-up" basis, and the estate paid taxes on the appreciation of the property. With the repeal of the estate tax, the estate will no longer pay tax; however, the heirs will. Under this scenario, the heirs will not receive a "stepped-up" basis on the assets. Instead, they will receive the assets at "carryover" basis, which is the value of the original basis. The effect of this will be that if the heirs liquidate the asset, they will have to pay capital gains tax, currently at a rate of 20%, on all appreciation of the asset from the original date of acquisition. But remember, the repeal is slated for 2010. A lot could happen between now and then.

Also even under the new law, retirement plan assets (and IRAs) will still be subject to income tax of up to 35%-38.6% by the recipient. So, these are good assets to give to the College of Arts and Sciences, because the University of Oregon Foundation is a nonprofit corporation, and will not have to pay income taxes on these tax-deferred assets, like an heir would. In fact, IRAs are still one of the best assets to give to charities, because the taxes incurred on them before they reach the heirs would amount to the heirs receiving twenty-five cents on the dollar, until 2010, at least.

Planning your estate is a journey that involves a look into your future and what you would like to accomplish in your life. First, consider your needs. What portion of your wealth are you going to need now and in retirement to assure financial independence? Second, after providing for your financial independence, what do you want to provide for your family? What values could you pass on to them? Third, what legacy do you want to leave that reaches beyond your family, to your community? This legacy can also communicate your values and create a legacy for future generations. One way you could establish an enduring legacy is by supporting the College of Arts and Sciences through a gift to the University of Oregon Foundation.

Many people think that estate planning involves attorneys, accountants, and other advisers. Actually, the process begins with you. So, take an active role in planning your future and deciding what kind of difference you would like to make in your lives, the lives of family members, and your community. The College of Arts and Sciences development staff will be happy to discuss your estate plans with you and give you ideas.

Got IRAs?
("Gift Rap," Cascade, Fall 2000)

Dear Gift Rap: I’ll be 68 next year, and my husband turns 70 in December. We’re both working, although I plan to retire soon. Our long-term financial picture looks good: we have pensions, a solid stock portfolio and significant assets in IRAs. We started opening IRAs twenty years ago, so the funds have accumulated quite a bit. We want to share our good fortune with the UO and would like to establish a fund for faculty in the Department of Philosophy.

Originally we were going to transfer some of our IRA assets to the UO, thinking they worked like stock. However, I was told that we cannot simply transfer the IRAs to the UO Foundation—that first we must take distributions as regular income, pay the tax, and then give away cash. Is this correct? We were thinking of using the IRAs for charities and passing some along to our kids. What are our options?

Dear Bend: Thanks for your question. Your desire to increase your charitable giving is admirable. Making such an investment at the UO will have an important impact. Any of our staff would be pleased to discuss gift options with you.

Regarding your Individual Retirement Annuity (IRA) dilemma, many folks find themselves in a similar situation. You are correct about how you may use your IRA to make a charitable gift: at present, you cannot simply transfer IRA assets to a charity, but first must take the distribution and then make a cash gift. Also, beginning at age 701/2, you must take minimum IRA distributions, and these are treated as regular income with concomitant income tax liabilities.

Additionally, IRAs are opened with after-tax dollars, and the tax on the growth is deferred until you start taking distributions. The hitch is that whatever you do not use during your lifetime is subject to significant taxation upon your death. Under the current rules, if you leave a large portfolio of IRAs, there’s a very high probability that a huge percentage of your remaining IRA assets will go to pay the taxes on the accumulated growth. It’s not uncommon to have as much as 80 percent of the remainder go to taxes, leaving little of the IRAs for either a bequest or inheritance.

In most cases, you do have some recourse. Depending on the limitations of the individual account, you can make a charitable organization, like the UO Foundation, beneficiary of your IRAs. This may reduce your estate’s tax liability relative to the IRAs. Second, and in the near term, you can use the IRA distribution to make a cash gift. Because it’s cash, you can claim a charitable deduction of up to 50 percent of your adjusted gross income (AGI) in the year you make the gift. If you can’t use the entire deduction that year, you can carry it forward for five more years. The deduction for appreciated property (stock, real estate) is 30 percent (and you avoid the capital gain tax). Many people find that they can make a pretty substantial gift using IRA funds and limit—if not mitigate entirely—the tax on the IRA distribution.

Here’s an example:

Your AGI of $150,000 includes an IRA distribution of $50,000. You give $50,000 in cash to the UO Foundation to establish a faculty fund in philosophy. You can deduct the entire $50,000, thereby reducing your taxable income to $100,000.

But please consider consulting with your accountant or tax advisor if you have not already done so. It is very important to review IRAs and the contracts that stipulate the terms of distributions. It also will be useful to get a head start on your tax planning for this year, especially if you’re contemplating a pretty big change in your income picture. You’ll want to give yourselves plenty of time for filing the necessary paperwork for IRA distributions. It can sometimes be a lengthy process. Don’t wait until November to start the process.

I referred earlier to the rules about IRAs as they apply today. Several pieces of legislation currently are pending that may well change how, when and to whom you can give your IRA assets. The changes may occur soon, or could take years. In the meantime, it is possible to formulate strategies for using your IRA assets to best suit your living expense and charitable contribution plans.