Planning · June 16, 2022

What to Know When Gifting to Educational Institutions

Hank Dunbar

Charitable & Philanthropic Services Manager

In 2020, Americans gave a staggering $71.3 billion to support education causes, second only to contributions made to faith-related organizations. That amount increased in 2021, but the final number is not yet available, though higher education gifting seems to be closing the gap on faith-related gifting.

There are many reasons why an individual may wish to make a gift to an educational institution. Some of the most common reasons are to give thanks to an alma mater that gave a great experience, to pay it forward for the next generation, or to make a gift to their children's or grandchildren's current school.

Benefits of Gifting to Educational Institutions

Donating to a beloved alma mater in and of itself feels good and is a benefit. The good news is that there are also potential financial benefits to donating to such institutions. Some of these benefits include:

  • You may be able to deduct the gift from your federal income tax return, although there are limits to how much you can deduct based on the type of charity, type of asset, how much is given and when the asset is given.
  • In many cases you can avoid or defer capital gains tax.
  • Making a gift may increase your personal after-tax cash flow.
  • Making a gift may increase the amount of your estate passing to your heirs.

When it comes to donations and ensuring you can deduct them from your tax return, work with your tax professional who can guide you through both federal and state return guidelines.

What Different Types of Gifting Structures and Fundraising Campaigns Mean

If your alma mater or children's school has ever reached out to you for a donation, you've probably heard about multiple types of campaigns. If you'd like to make a gift, you should consider the nature of the assets you contribute (e.g., cash, publicly traded securities, real estate), as well as how that contribution will be used.

Annual fund campaigns support the general operating funds of an institution, but it's easy for a donor to restrict use of the funds based on the donor's particular interests. Donors may want to direct gifts to a program (e.g., performing arts or athletics) or an academic field (e.g., the biology or political science department). Either way, these contributions offset the ongoing, day-to-day operation of the institution and are an institution's favorite way to receive gifts.

Capital campaigns are also important to higher education because they secure funds to support construction, renovation and infrastructure needs. These campaigns run separately from (or parallel to) annual fund campaigns and focus on giving over and above a donor's typical annual fund gift. Contributions for construction or renovation usually present the opportunity for a donor to name a space in the facility—larger gifts for more visible and larger spaces, smaller gifts for offices or classrooms.

Endowment campaigns focus on securing funds that will provide ongoing support for an institution. Contributions are accompanied by an endowment agreement that specifies any restrictions placed on the funds, (e.g., scholarship, professorship, lecture series). While donors may want to place restrictions based on the current educational environment and institutional needs, donors should understand that things change over time and should allow, even encourage, that an agreement include flexibility to provide for the institution's future needs. Most institutions set minimums for named endowment funds, but they usually offer opportunities for donors to make gifts to general or program-specific endowment pools.

Structures to Provide Gifting to Educational Institutions

When it comes to gifting to educational institutions, many potential donors turn first to cash donations—they're easy to execute and in most cases are fully deductible from your federal tax return.

But gifting doesn't have to stop at cash payments. There are many types of lifetime gifting structures potential donors can leverage, especially to make regular or large donations. Key benefits for lifetime gifting or gifting at death include reducing the size of the gross estate and income tax deductions within certain percentage limitations.

Split-interest gifts are a good solution for potential donors who are unwilling or unable to contribute the entire asset during their lifetime. This structure means the donor can split the asset into two parts where one portion is given in trust to the educational institution (or charitable institution—this structure works for both) and the other portion is retained for the estate holder's use.

A charitable remainder unitrust is a unique gift to an organization—such as an educational institution—which allows you, the donor, to enjoy supplemental income and immediate tax benefits, as well as reduce the taxable value of your future estate. With a charitable remainder unitrust, a trust is established and funded with cash or other assets such as appreciated property or stocks. The amount you receive as income each year is calculated annually based on a set percentage (chosen by you) of the market value of the assets. Upon your passing, the balance of your trust supports the organization's mission.

The idea behind a charitable remainder annuity trust is nearly the same as the charitable remainder unity trust. The annuity trust is funded with your assets, but the amount you receive as income each year is fixed for the remainder of your life. Both the unitrust and annuity trust can help you eliminate upfront capital gains tax on long-term appreciated assets and securities.

Leave a Legacy to an Educational Institution

If you want to make gifting to an educational institution part of your legacy, having a basic understanding of the benefits and your options is a good place to start. To learn more about specific structures that will optimize your gifting and estate plan, get in touch with a First Citizens charitable and philanthropic specialist who can hep you navigate what and how to give to support your favorite educational cause.


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