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Ways of Funding Your Endowed Scholarship
- Gifts of Appreciated Property
- Life Insurance
- Gift of Undivided Interest
- Split Interest Gifts
- Single Contribution
- Bequest
- Accumulation Account
Gifts of Appreciated Property
One of the most efficient means of giving is that of utilizing appreciated property. The IRS allows a deduction for the full fair market value of assets such as stocks, bonds, and real estate transferred to the SMSA. Such gifts offer a substantial tax savings over gifts of cash based on your individual tax circumstances, are subject to Alternative Minimum Tax consequences, and therefore should not be made without professional tax advice.
Life Insurance
A Life Insurance Policy provides a unique method of establishing your endowment. You may utilize policies you currently own or you may acquire a new policy specifically structured to fulfill your endowment objective.
Gift of Undivided Interest
A Gift of Undivided Interest is a contribution of a complete interest in a portion of a property. This gift should be made prior to any firm contract for sale.
Split Interest Gifts
Split Interest Gifts occur when a contribution is divided and shared by you and the SMSA. Generally, these parts consist of an "income" or "use" interest and a remainder interest. The government only allows a charitable deduction for these gifts when made under specific guidelines. Examples are:
- Charitable Remainder Trusts A CRT is beneficial if you desire continuing income from your gift, but have no need for the principal attached to the asset. You contribute the asset to a trust and receive an income tax savings. Income from the trust is paid to you or a designated beneficiary for a term of years or for life. At the end of the established income benefit, the principal is transferred to the SMSA.
- Charitable Lead Trusts A CLT is another beneficial tool if you have income that you temporarily do not need. This trust differs from the CRT in that the income is paid to the SMSA and the principal is returned to you or your beneficiary. The income that the SMSA receives will be used to fund your Endowment Accumulation Account.
- Life Estate Agreement A Life Estate Agreement is similar to a Charitable Remainder Trust, only you retain "use for life" of the property, in this case your home, instead of an income interest. At your death, the home transfers to the SMSA.
Single Contribution
If you would like to fund your future endowment with one single contribution you may do so. A discounted amount will be calculated based on the installments that would have normally been made to an Endowment Accumulation Account. Doing so reduces the outlay for your endowment while providing greater tax savings in the year the contribution is made.
Bequest
A provision in a Last Will and Testament is often used to fund an endowment with assets accumulated over a life time. Endowments created at the time of one's death are usually added to by friends and relatives wishing to make memorial contributions.
A bequest may also be used to complete your Endowment Accumulation Account. For example:
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Endowment Accumulation Account
Rather than waiting to establish a fund sufficient to endow a "Named" Scholarship with assets generally accumulated over your lifetime, consider creating an SMSA Endowment Accumulation Account.
The SMSA Endowment Accumulation Account allows you to work with the established fund goal of endowing one scholarship and beginning now to contribute through annual gifts towards its completion. These annual gifts can be made in a variety of ways and be placed in your fund to grow tax free until your goal is reached and your scholarship is endowed.
How an Accumulation Account Works
We will assume that in 1970 Builder Chief Donor, age 50, decided he would like to establish the Donor Endowment Fund with the Seabees to provide a $1,250 scholarship adjusted for inflation. Donor contributed $1,500 per year for the next ten years. These contributions were placed in an investment account and all earnings reinvested. During the fifteenth year, the Donor Endowment Fund reached a value sufficient to endow a scholarship. Below is a summary of how Donor's account performed over twenty years.
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These examples are based on actual performance of the S&P 500 Fund for the period indicated (for projected years, performance is based on the twenty year average) and is provided for illustrative purposes only. They are not intended to be representations of future performance.
Consider Distributing Income
Assume Builder Chief Donor elected to have 5% of the fund's income distributed to the SMSA for current scholarship needs with the remainder reinvested to reach the endowment level.
Not only would Donor's Endowment Account still reach a value sufficient to endow a scholarship, it would also, during the accumulation period, distribute over $150,000, which is more than ten times the amount invested. Below is a summary of how the account would perform.
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Benefits of an Endowment Accumulation Account:
- Your contributions will grow tax free within your endowment fund until your target amount is reached.
- It is your decision whether to contribute more or less in any year.
- Family members and friends also may contribute to your fund in honor of birthdays, anniversaries, and other special occasions.
- Income generated as your account grows may be reinvested or distributed to SMSA.
- The account may sell appreciated assets without being subject to capital gains tax liability.
- Under current law, donors receive a charitable tax deduction as well as reduced estate tax liability.
- You have the satisfaction of knowing that your fund will PERPETUATE YOUR GENEROSITY.
This is only a partial list of the various ways of giving. Please consult a SMSA representative for information on how to pursue your philanthropic wishes.
The concepts described are designed to acquaint you with several methods of establishing your "Named" Endowment. Any reference to tax benefits or specific values are offered for illustrative and educational purposes only.
Please consult your personal tax and legal counsel.
Thank you for your interest in an exciting program designed to guarantee the future of the SMSA.
