THE
FINANCIAL
GUIDE
ASK
EXPERT
EXPERT
THE
SPRING
2015
ISSUE
THE
Ryan T. Lynch, CFP®, ChFC®
President, LYNCH & Associates
Newburgh, IN
BS, 1995 Krannert School
of Management
Ryan resides in Evansville, IN, with his wife, Joelle (BSPHA, 1997 Pharmacy),
and their four school-age children. Ryan has been with LYNCH & Associates,
founded by his father, Tom Lynch (BS, 1972 Civil Engineering), since graduation
in 1995. He also serves as treasurer of his church’s endowment fund.
Q:
Ryan, if the Charitable IRA
Rollover is available again in
2015, what are the benefits of
making a donation by taking a
qualified charitable distribution
from your IRA?
2006, IRA owners over
A: Since
the age of 701/2 have been
allowed to distribute up to
$100,000 from their IRA to a
qualified charity. This distribution
satisfies the annual RMD (Required
Minimum Distribution) amount,
but does not result in a taxable IRA
distribution. So, effectively, the
entire donation is completely
tax-free, and viewed from another
angle, is the same as getting a full
tax deduction on a donation.
For donors who utilize the standard
deduction on their tax return,
donating from an IRA is their best
giving option. Since this donation
is a qualified charitable IRA
distribution, the gift is not actually
an “itemizable” deduction. Rather,
the entire amount of the donation/
distribution avoids taxation
completely. So, for the donor
utilizing the standard deduction,
this ensures the charitable
distribution avoids taxation,
> ASK THE EXPERT Q&A
> CHARITABLE REMAINDER TRUSTS
> GIVING OUTSIDE THE BOX
> PURDUE MOVES
> NOW AND THEN
WHAT’S NEW
PURDUE?
> CGA RATES
which is the same as getting a full
tax deduction.
For high-income donors, the
amount of allowed itemized
deductions may become reduced.
So, for the high-income earners,
this charitable IRA distribution is
a very tax-efficient option.
In summary, anyone over the age of
701/2 who has decided to donate to
Purdue, and has an IRA account,
should definitely consider this
qualified charitable IRA distribution
as it is most likely the best tax-wise
option for giving.
might it make sense to
Q: When
name a charity as a beneficiary
of your retirement plan?
account (and life
A: Retirement
insurance) beneficiary
schedules supersede a will, and it is
very easy to update the beneficiary
designation to list a charity, if even
a contingent beneficiary. It can
make good sense to list a charity as
a beneficiary since the charity will
receive the full amount without
tax consequence. So, ultimately
there will never have been taxes
paid if the retirement funds are
given to charity.
Further, in nearly all circumstances,
an individual beneficiary/family
member would rather receive
— Continued on page 2
ASK
EXPERT
EXPERT
THE
(Continued from page 1)
inheritance outside of the
constraints of a tax-deferred
retirement account. So, if you plan
to leave something to charity, leave
the retirement assets (or a portion)
via the beneficiary schedule to the
charity, and leave non-retirement
assets to individual beneficiaries
using a will or trust. Especially if
your individual beneficiaries are in
high tax brackets, giving your
retirement assets to charity may be
the better option, while giving
other assets outside of retirement
to your family/individual
beneficiaries.
By the way, it is definitely better
to specifically list a charity or
individual(s) over listing “per will”
or “estate” as the beneficiary.
If your will or the estate is a
beneficiary, there will most likely
be a FULLY taxable distribution
before the final beneficiary
receives benefit. So, for anyone
with a retirement account, please
specifically list a person, trust
or charity. Listing “per will” or
“estate” is often a mistake.
THE IRA CHARITABLE ROLLOVER
If you are 701/2 or older, you can
use pre-tax retirement savings
from your IRA to support Purdue
University without paying any tax
on the IRA distribution. Congress
typically extends the IRA rollover
for a year or two at a time. The IRA
rollover expired on January 1, 2015.
We expect Congress to pass an
extension later this year.
WHAT IS A
CHARITABLE
REMAINDER TRUST?
The charitable remainder trust
(CRT) is often used as a financial
planning tool to provide current
tax deductions and income
during a donor’s lifetime.
Depending on the circumstances,
CRTs can be an advantageous
estate planning tool as well.
Here, we’ll explore opportunities
and advantages for setting up a
testamentary CRT.
WHAT IS A TESTAMENTARY
CHARITABLE REMAINDER TRUST?
A charitable remainder trust is a
trust that provides for a specified
distribution, at least annually,
to one or more beneficiaries,
at least one of which is not a
charity. Current IRS regulations
permit an individual to include
the creation of a testamentary
charitable remainder trust in
estate documents. The trust
can be created after death, or
can be accelerated and created
during your lifetime. Upon your
passing, the executor or trustee
of the estate transfers previously
determined assets to the Purdue
Research Foundation. The trust
invests the assets and agrees to
pay your beneficiaries an income
for life or a term of years. Upon
termination of the CRT, the
remaining assets are used for the
charitable purpose you designate.
There are several reasons why
someone might choose to set up
a testamentary CRT through his
or her estate. Perhaps the donor
wishes to establish a predictable
income stream for a surviving
spouse, or may have retirement
assets that would be too heavily
taxed if passed to anyone but
a spouse.
Let’s look at a specific example:
Pat Purdue, 86, is a widow and has
a 401k valued at $500,000. Making
her two sons, ages 67 and 64,
co-beneficiaries of the retirement
account would accomplish her
goal to leave them an inheritance,
but they will likely lose a good
percentage to taxes. Additionally,
one of the two sons has difficulty
managing his money and Pat
worries about him receiving a sixfigure lump sum.
Assume each son is in a 28%
federal income tax bracket. If Pat
leaves them each $250,000, each
son would pay $70,000 in income
taxes ($250,000 x 28%), netting
each son only $180,000.
After speaking with someone at
Purdue, she decides to set up a
testamentary charitable remainder
unitrust. She names the trust as
beneficiary of her 401k, and the
account flows to the trust at
her passing.
If upon Pat’s passing, the CRT is
created with $500,000, each son
would receive $12,500 in the first
year. Assuming each son lives for
20 years and there is no growth in
the trust, each son would end up
receiving $250,000 over the term
of the trust ($12,500 x 20).
This leaves Pat with the
satisfaction of knowing each of
her sons will receive what she
originally intended. She will also
be providing each with a steady
— Continued on page 3
GIVING
GIVING
THE BOX
PURDUE
MOVES THE WORLD
OUTSIDE
It sometimes seems that the phrase “cash is king” is so deeply wired
within us that we don’t look at other methods when making gifts
to charity. Take a look at the list below for some suggestions for
thinking outside the box when it comes to charitable giving.
APPRECIATED SECURITIES– Securities worth more than you paid for them
are subject to capital gains tax. Transferring these assets to the Purdue
Research Foundation (PRF) allows you to take a charitable deduction for
the fair market value of the asset and avoid all capital gains tax that would
have been realized if the securities were sold for your benefit.
DONOR ADVISED FUNDS– Establishing a donor advised fund allows you to
contribute cash or securities to your own charitable giving account. You
receive a charitable tax deduction for the amount you contribute in the
calendar year you contribute it. However, you decide when the money is
distributed and to whom. These kinds of funds could be beneficial to the
savvy investor who has charitable intent, but has not yet developed a
solid giving plan. Such a fund would allow you to transfer highly
appreciated securities during market peaks and decide how to give it
at a later date.
RETIREMENT ACCOUNTS– In recent years, legislators have passed laws that
allow those age 701/2 or older to give from an IRA account. The gift counts
towards the account owner’s required minimum distribution, but does not
count towards taxable income. Additionally, those looking to make a
significant gift at their passing might consider naming PRF as a partial or
full beneficiary of a retirement plan. Because so many retirement plans
are funded with pre-tax money, heirs can incur heavy tax burdens as a
named beneficiary. PRF carries non-profit status and can receive the gift
with zero tax consequences.
WHAT IS A CHARITABLE REMAINDER TRUST?–continued from page 2
income stream after her passing and won’t have to worry about either
son quickly exhausting his inheritance. Pat’s benefits also include:
• The estate receives a charitable deduction, and Purdue receives the
asset with no tax implication.
• The remainder, at her sons’ passing, will go to fund a scholarship in
honor of her and her late husband, Pete, leaving Pat with the
satisfaction of knowing that she has provided a meaningful and
important gift to Purdue.
Our office regularly creates template drafts of trust documents for use
in current or testamentary trusts. We would be more than happy to
prepare a sample trust agreement that your attorney can work from
in creating a testamentary trust as part of your estate.
FORWARD
PURDUE KEY INITIATIVES
Purdue is at the forefront in
transformative education:
CHANGING THE WAY
LEARNING OCCURS
Instruction Matters: Purdue
Academic Course Transformation
(IMPACT) has been identified by
the President’s Office as a key
component of the Purdue Moves
initiatives. The goals of the
IMPACT program include working
with faculty teaching fundamental
courses that are part of the new
core curriculum while maintaining
a course transformation rate of 60
courses per year over three years.
As of fall 2014, Purdue has
redesigned 120 courses, focusing
on fewer lectures, more group
projects, and incorporating
online and in-class components
to optimize faculty-student
interaction. We aim to double the
rate of class transformation and
lead the nation’s universities in
creating a new student-focused
learning culture.
ENGAGING MORE STUDENTS IN
INTERNATIONAL EXPERIENCE
Given the cultural, professional
and academic gains our students
realize when they study abroad,
we will increase the number of
students in an international study
experience. In an increasingly
global society, our students
must graduate with the cultural
competencies needed to make the
greatest possible difference.
— Continued on page 4
OFFICE OF
PLANNED
GIVING
Purdue Research Foundation
Dick and Sandy Dauch Alumni Center
403 West Wood Street
West Lafayette, IN 47907
phone 800.677.8780
email [email protected]
web purdue.giftlegacy.com
The Purdue Research Foundation (PRF)
is an independent organization that acts
for the benefit of Purdue University.
PLANNED GIVING STAFF
Marcus Knotts
Assistant Vice President
[email protected]
Jill Anderson
Director of Development
[email protected]
Jacob Griffin
Director of Development
[email protected]
Cara Giese
Director of Development
[email protected]
Gunnar Crowell
Director of Development
[email protected]
CGA RATES
AGERATE
65
4.7%
70
5.1%
75
5.8%
80
6.8%
85
7.8%
90
9.0%
Rates as of 1/31/2015
Please note: Purdue University is a tax exempt public
charity and does not provide tax, legal, or financial
advice. Any document or information shared by our
staff is intended to be educational and informational.
Purdue strongly encourages all of our benefactors
to seek counsel from their own legal and financial
advisors. Please know that any information or
documents shared by the Development staff cannot
be used to avoid tax-related penalties
PURDUE KEY INITIATIVES (Continued from page 3)
INCREASING SUCCESS AND VALUE LIVING ON CAMPUS
Students who live on campus achieve greater academic success and
graduation rates than do their off-campus peers. We will increase our
housing options so at least half of our students can live on campus.
A YEAR-ROUND OPTION
Students’ greatest need is to move quickly, flexibly and affordably in
their academic careers. Purdue is focusing on year-round education,
which provides students with greater flexibility to incorporate
internships, study abroad and undergraduate research into their
Purdue experience.
WE INVITE YOU TO VISIT www.purdue.edu/purduemoves/
FOR A COMPLETE LIST OF PURDUE MOVES.
The R. B. Stewart
Society honors
individuals who
embody the spirit
of Purdue’s master
builder, R. B.
R.B. STEWART SOCIETY Stewart. Stewart
arrived at Purdue
in 1925, when the physical plant
was valued at $3 million; upon
his retirement in 1961, after
serving as vice president and
treasurer, the physical plant value
was $160 million.
THEN AND
NOW
R. B. Stewart was also nationally
recognized as the “Father of the
G. I. Bill.” Today’s benefactors who
provide for Purdue’s future
through a will bequest, retirement
plan, living trust, insurance policy,
charitable gift annuity, or
charitable remainder trust are
included in this prestigious
society reflecting Stewart’s
dedication and generosity to
Purdue. Please contact our office
for information on how to be
recognized as an R. B. Stewart
Society member.
GRAND PRIX
START YOUR ENGINES FOR “THE GREATEST
SPECTACLE IN COLLEGE RACING!”
The Purdue Grand Prix draws
more than 50 team entries
each year with more than
5000 spectators.
Mark your calendars for
the 60th Anniversary
April 23, 2016!