It seemed like Dr. Svendsen’s work with stem cells held out hope for treating and perhaps one day curing or possible preventing Parkinson’s disease, ALS and similar neural diseases and damage. We thought, 'If we’re donating to the UW already, why not direct some of it to this research that can really change lives for the better?'

Brenda McCroskey

FEATURED ARTICLE JANUARY 2004

Meeting College Education Expenses

Since virtually all unearned income of a child under the age of 14 is taxed at the parents' marginal rate, diverting income to children in lower tax brackets for the purpose of meeting educational expenses is no longer a viable strategy.

Again, charitable planning offers an attractive alternative for the person with charitable motivation who also wants to help finance a young person's college education expenses. One plan, the charitable education trust, allows you to generate educational funds and make a significant charitable gift at far less cost than doing each separately.
Example: Bob and Vivian have a granddaughter who will be enrolling in college soon, and they expect she may wish to pursue a graduate degree. To help cover her tuition and other basic expenses, they transfer stock having a market value of $100,000 and a cost basis of $35,000 to a charitable remainder trust with University of Wisconsin-Madison that will continue for a period of eight years. During each of those eight years, their granddaughter will receive annual payments of $8,000.

Here are the benefits to the respective parties:

  • granddaughter receives a stream of income totalling $64,000 for her education;
  • payments are taxed at a lower rate than they would have been to her grandparents;
  • grandparents receive a charitable income-tax deduction of more than $45,000 and avoid paying tax on $65,000 of gain;
  • University of Wisconsin-Madison eventually receives $100,000, assuming the trust earns a consistent 8% return on investments; and
  • grandparents have to report a very small taxable gift but most likely will not have any out-of-pocket cost due to their lifetime credit for taxable gifts.
Caution: If the child-beneficiary is under 14 years of age, the trust payments will be taxed at the parents' higher tax rate. However, careful funding, such as with tax-exempt bonds, can significantly diminish or even eliminate the negative impact of this provision.

We would welcome the opportunity to show you how a charitable education trust might fit in with your plans. Please click here and fill out the request form if we can be helpful in any way.