Life Income Gifts
A life income gift allows you to make a gift to Stanford while providing yourself or others with income for a period of time before Stanford is permitted to use your gift. You may make a life income gift by irrevocably transferring securities, money, or other property to Stanford or a trustee. The university or trustee then manages the investment of the assets and pays an income to you, your designated beneficiaries, or both. Income payments continue for the beneficiary's life or, in some cases, for a term of up to 20 years.
After that period, the assets remaining from your gift go to Stanford to support the educational, research, or patient care program of your choosing in your name or in the name of someone you wish to honor.
Charitable remainder trusts and charitable gift annuities are examples of life income gifts.
There are many reasons to make a life income gift. You may want to make a gift to Stanford University, but feel you do not want to part with the income that you receive from the asset you wish to give to Stanford. Or you may want to take an asset that is not providing you much income and give it to Stanford using an arrangement that will provide you (or someone you name) with more cash flow than you had before. By making a life income gift, you can support Stanford while providing ongoing benefit to yourself or others. Life income gifts also count for The Stanford Challenge.
Tax and Other Advantages of Life Income Gifts
Donors to Stanford have the satisfaction of knowing that they are supporting the best in higher education, advanced research, and medicine.
A life income gift offers added rewards:
- It pays you, your beneficiary, or both an income for life or for a specific period of years—in many cases providing a larger income than the gift property is currently earning for you.
- It can offer significant tax advantages in the form of an immediate charitable deduction, avoidance of capital gains tax upon sale of any appreciated assets, and an eventual estate tax savings.
- It relieves you of the burdens of asset management and enables you to support, in a significant way, a Stanford program in which you are especially interested.
Choosing How Your Life Income Gift Will Be Used
As a life income gift donor, you have numerous options:
- Unrestricted gifts are most valuable, as they allow the university to flexibly and imaginatively meet university needs.
- Restricted gifts support ongoing university needs, such as undergraduate scholarships, graduate fellowships, faculty support, and library funds. They can also be used to build and maintain facilities or to underwrite research.
- Endowed funds provide income every year in perpetuity to carry out the designated purpose of the gift. The principal of the gift is not spent.
- Expendable funds spend both the principal and the income on the designated purpose of the gift.
- Naming the fund: For gifts of $100,000 or more, a fund may be named in honor of the donor or someone else the donor wishes to honor. Named funds remain visible in the Stanford community because of the people and activities they support. This visibility also encourages others to give.
Types of Life Income Gifts
There are several principal types of life income gifts, giving you a range of choices in your financial and estate planning; one may be ideally suited to your particular circumstances. These gifts are described briefly below.
Charitable Gift Annuity
- In exchange for a gift of money or property to the university, Stanford promises to pay a fixed amount each year to you or your designated beneficiary for life.
- Gift annuity contracts essentially consist of two parts:
- A current tax-deductible gift to Stanford.
- The right to receive a fixed-dollar amount of income each year for the life of one or two beneficiaries.
- The annuity payment amount will depend upon the beneficiary's age at the time of the gift and the value of the property donated. If the gift is funded with cash, a substantial part of the annual annuity payments may be entirely tax free. In some states, regulations may prevent Stanford from offering gift annuities to residents of those states.
Deferred Gift Annuity
- Works the same way as a charitable gift annuity, except that the first annuity payment is deferred for at least one year from the date of the gift.
- This is an excellent method of arranging dependable retirement income.
- By deferring the date on which annuity payments begin, you will receive a larger income tax charitable deduction in the year of the gift.
Charitable Remainder Unitrust—Percentage Unitrust
- The annual income paid to the income beneficiary is not fixed at a specific dollar amount, but rather is a percentage of the asset value, usually between 5 and 7 percent.
- Provides for income growth as the trust assets grow in value.
- If the trust income exceeds the payment required to income beneficiaries, the excess is added to the principal.
- If the payments required to income beneficiaries exceed the income of the trust, a portion of the trust principal (including accumulated gain) will be distributed.
- Counters the effects of future inflation.
Charitable Remainder Unitrust—Net Income Unitrust
- Provides greater income flexibility because it provides for payments of either a fixed percentage (at least 5 percent) of the trust's annual value or the net income of the trust, whichever is less.
- Particularly well suited for the younger donor who does not need large income payments now but who wants to allow the trust value to increase over time so that it pays higher amounts in later years.
- Avoids the necessity of distributing trust principal while trust income is low and, in some forms, builds up "income credits" for the future.
Combination or "Flip" Trust
- Since 1998, IRS regulations have allowed a unitrust to begin as a net income unitrust and then "flip" to a percentage unitrust.
- Allows a donor to give real estate or other illiquid assets to the unitrust and then "flip," once the assets have been sold, to a percentage unitrust, which may be able to pay out more income over time.
Pooled Income Funds (PIF)
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Stanford's two pooled income funds consist of life income gifts invested in a broad range of equity and fixed-income mutual funds.
- The Stanford balanced pooled income fund seeks regular income for the beneficiaries, protection of the principal, and opportunity for growth of principal over time with resulting growth in income. Each year, the entire net income is paid to the beneficiaries.
- The Stanford long-term pooled income fund
seeks a rate of current income with little or no prospect for long-term growth of principal.
On the death of your named beneficiaries, the proportionate share is withdrawn from the fund and used for the purpose you designate.
Charitable Remainder Annuity Trust
- Provides a fixed income for life and then supports the Stanford educational program of the donor's choice.
- The annual dollar amount paid is mutually agreed upon by donor and Stanford when the trust is established. The amount selected is usually between 5 and 7 percent of the initial fair market value of the property transferred to the trust.
- Payments of the selected amount are made each year regardless of the income earned by the trust, and they are backed by the total amount of the assets held by the trust.
For more information or to make a gift, please contact:
Carol Kersten
Director of Planned Giving
650.725.5524
