| Sargent & Lundy Savings Investment Plan |
| SAVING TAXES WITH CHARITABLE DONATIONS |
| The following excerpts are from an article in the Tuesday,
June 16, 1998 "Chicago Tribune". The opinions of the author,
Pat Butler, may or may not reflect those of the SIP Committee.
Dan and Norvelle Judd could have taken a conventional route when they decided to make a donation to Columbia College in Columbia, S.C. They could have given the $11,000 or so outright, or they could have written a bequest into their wills. Instead, they decided to give the money in a way that helps the college and helps them too. They chose a charitable gift annuity, in which the college reinvests their gift and pays them part of the investment income until they die. Besides the monthly or quarterly payments, they also get substantial tax savings. "We could live without the income, but it's a sure thing," said Judd, 74, who was an accountant for the college and sent his daughter to school there. "Today a catastrophe, an illness even, can wipe you out in a year. This would be a small income we know we could count on." The Judds are among a growing number of people taking advantage of charity options that allow the giver to get a return on his or her donation. They are often called split interest gifts because both the donor and the charity benefit. "It's increasingly popular," said Ben Rast, first vice president of the Columbia, S.C. office of Dean Witter Reynolds. "It allows you to do well for yourself by doing well for others." The only losers, Rast said, are the IRS and potential heirs, who might not get as much in an estate. While some of the donation options are practical only for people who can give $100,000 or more, others, such as the charitable gift annuity, can often be used by people giving as little as $5,000. "This is a phenomenon you're seeing more and more among people who would never have thought of it previously," Rast said. But financial planners and charities stress that it's not an investment scheme. "I don't know anybody who does this just to make money," said Harriette Wunder, senior director of development at the University of South Carolina. "You're ultimately going to make a gift to charity. That is why the tax laws are structured the way they are. It allows a person to make a gift during their lifetime, keep the income they need to live on and ultimately do a very good thing." Like other fund raisers at colleges, hospitals, churches and cultural institutions, Wunder said many potential donors are surprised that they can give money and get some income back. Heber and Gloria Rast had long thought about making a bequest to the Lutheran Church, where they're both active. But it wasn't until they talked to Linda Davenport, a certified financial planner with American Express Financial Advisers, that they realized they could use a charitable donation to reinvest assets, avoid capital-gains tax and maintain an income. Charities, of course, prefer out-and-out donations to those that require paying the donor and waiting until he or she dies to get the entire donation. "But we believe this enables people to make gifts who might not have been able to certainly didn't perceive themselves as able," said Allison Dalton, president of the Baptist Foundation of South Carolina. Dalton and others with charities recommended that donors consult a qualified financial adviser for even the relatively simple donation plans. The charity could draw up the agreement, but that might not be in the donor's interest. There are several kinds of plans. Among them: charitable gift annuities; pooled income funds for donors making smaller gifts; charitable remainder trust, usually for donations over $100,000, where the charity gets the entire gift upon the donor's death; and its opposite, charitable lead trust where the charity gets the income from the gift and the donor (or his or her estate) gets the asset back after a set period of time. One reason for the growing use of the charitable tools is the bull market, financial adviser Ben Rast said. People have seen their assets increase dramatically and are trying to avoid capital-gains taxes. In addition, members of the World War II generation, prone to saving money, are reaching an age where estate planning is essential. "They're of an age that was very frugal, very conservative. They've saved and invested," said Dalton, who has been conducting seminars at Baptist churches to teach people about the options. "As a consequence of the good economy we've had, returns have been high. They're now in possession of more assets than they ever dreamed they'd have." Other people are choosing the charitable options because they don't want the government, through taxes, deciding how to spend their money for the public good. "A lot of the charitable giving is people wanting to take control of their social capital, rather than giving it to the government to handle and distribute," Davenport said. |
This page updated on 6/22/98