Benefits of giving a scholarship endowment

Some universities, such as UC Santa Barbara, will allow donors to pool together to create an endowment. Others, such as the University of Delaware, discourage it. Some will accept in-kind gifts such as artwork, while others prefer cash.

What are the tax benefits?

When it comes to the tax benefits of an endowed scholarship, several factors come into play, says Mike Cumming, leader of the tax practice group at Dykema law firm near Detroit.

If you make a cash gift during life, as a general rule, you can take a charitable deduction of up to 50 percent of your adjusted gross income, or AGI, each year that you give, Cumming says. If your gift exceeds 50 percent of your AGI, you can roll over the difference to the following year, for five years going forward.

If, however, your gift is in some form other than cash, the tax consequences are different. For example, if you gift stock, you can only deduct 30 percent of AGI, Cumming says.

Additionally, the rules on total deductions for individuals earning more than $250,000 per year recently changed, Cumming says. If you fall in that group, your deduction will depend on the amount your AGI exceeds certain thresholds.

Giving at death, through a trust or will, provides an unlimited charitable deduction, says Cumming. But if the estate falls under the current $5.25 million exemption, you might consider gifting during life so you can enjoy an immediate income tax deduction.

The right way to endow a scholarship for tax purposes is determined "case by case," Cumming says, "depending on your adjusted gross income and your federal gross estate."

How will you enjoy your gift?

"The benefit to endowing a scholarship now versus at death is that we can thank you for it," says Nesmith. Donors also enjoy the benefits of seeing their gift in action, so to speak.

At both the University of Delaware and UC Santa Barbara, donors are treated to various university events and receive special publications from the university. They have the opportunity to name the scholarship and meet the students, faculty and the university president. The size of the gift will determine the level of appreciation from the university.

"The idea is that you're able to interact with the university in a way that others are not," Nesmith says. But perhaps the greatest gift is the knowledge that you've made a difference for students now and in the future, she adds. "Scholarship endowments create a gift that will last a lifetime and beyond if managed properly."


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