A Prudent Estate Gift
Last week I received a phone call regarding the funding of an endowed scholarship. What made this particular request different, as well as what sent me researching and inquiring to experts in the field, was that the donor wished to use United States Series EE Savings Bonds. These bonds had reached their maturity and were no longer generating additional interest.
Together we discovered that gifting the bonds outright would generate quite a bit of income tax. As one article stated, "There is no way you can avoid income tax on your bond's interest by giving the bonds to charity during your lifetime." Naturally, the donor wasn't thrilled about paying more, but—in some cases—the additional tax generated by the gift may actually be offset by the income tax deduction of gifting it to charity.
Through additional research and consultation, we also discovered that the savings bonds—as well as certain retirement funds like the 401(k), 403(b) and an individual retirement account (IRA)—are considered income in respect of a decedent (IRD). This means that the decedent's heirs will owe income tax and possibly estate tax when the bonds are cashed in. The prudent thing to do is to gift the bonds to Doane via a will. In this way, the donor can fund the scholarship after their death, and relieve the estate from possible heavy taxation.
If you face similar problems with your estate plan and want to ensure that your wishes are carried out after your passing, Doane has a tool for you. The My Will Planning Guide is available to you upon request. Knowledge is power, especially when trying to keep the tax man at bay.
If you have questions about making prudent decisions regarding planned gifts to Doane University or if you'd like a copy of our planning guide, please contact Thom Reeves at 402.826.8284 or thomas.reeves@doane.edu for assistance.