Blended gifts simply refer to a combination of giving strategies—often, a current donation combined with a gift designed to be executed sometime in the future.
There are two reasons why blended gifts are appealing. First, this strategy lets donors enjoy the satisfaction of making an impact today while also benefitting Harvard Law School tomorrow. Second, blended gifts can meet specific needs in highly satisfying and personal ways because of the different ways gifts can be combined.
Assets and Timing
No matter which gift options are selected, you choose which assets to give and when to give them. Each type of asset can have a different impact on taxes as well as on personal planning, goals, and needs. Here are some frequently used options:
- Cash—You qualify for a tax deduction for the amount of the gift, up to 100% of adjusted gross income for the year 2021.
- Appreciated stock—You qualify for a tax deduction for the fair market value of the appreciated stock and entirely avoid any capital gains tax on the appreciation.
- IRA required minimum distributions—If you are over age 70½, you can transfer up to $100,000 per year from an IRA directly to Harvard Law School. Although there is no charitable deduction, distributions are excluded from income and count toward the annual required minimum distribution, if one is due. This option does not apply to 401(k), 403(b), and other retirement plans, though these may be rolled into an IRA, which will then qualify.
- Retirement plan assets—You can make Harvard Law School the beneficiary of assets held in an IRA, 401(k), or other retirement plans. Since these assets are considered “income in respect of a decedent” (IRD), it is beneficial to keep them out of the estate. IRD assets are highly taxed and have the potential of being taxed twice in very large estates—once in the estate and again to the beneficiary (a child, for example). Leaving these assets to Harvard Law School avoids this taxation.
- Real estate (a residence, vacation home, or other property)—Like stock, real estate can appreciate substantially over many years. Making a gift of real property can provide an immediate tax deduction for the fair market value of the property and avoid capital gains tax on the appreciation. This is a good choice for donors who find property ownership increasingly burdensome due to property taxes, maintenance, and insurance. You can also contribute real estate, retain the right to use the property for your lifetime if it is a personal residence or farm, and receive a current income tax deduction.
- Life insurance—Donating a policy that has outlived the original purpose for which it was purchased is an easy way to give to charity without a current outlay of cash. The simplest option is to make a deferred gift by naming Harvard Law School as the beneficiary. It is also possible to make a gift of a paid-up policy and to receive a current income tax deduction.
Often, the choice of assets and giving strategy will determine the timing of your gift. Blended gifts typically combine the enjoyment of a current gift with the satisfaction of a lasting charitable legacy. The structure of blended gifts is very flexible and your personal goals and preferences will determine how you chose to proceed to create a successful result.
Simple Ways to Make a Blended Gift
Two examples making the most of an IRA
Martin, age 75, consistently supports HLS with annual gifts. Now retired, he is pleased that he can comfortably make a gift from his IRA each year that counts toward his required minimum distribution (RMD) and pay no tax on the distribution. For him, it’s an ideal way to support our work and avoid the tax he would have to pay if he received the RMD. HLS also does not pay tax when it receives the gift, so the full amount supports our work. Martin sees it as a rewarding way to make the most of his IRA funds.
After consulting with his advisor, Martin decides to take his giving one step further and create a blended gift by naming us the beneficiary of his IRA. The funds are still available to Martin if he needs them. At the end of his lifetime, HLS will receive the remaining funds in the account—an amount that will not be reduced by taxes. Martin informs us that he wants his gift to support student scholarships.
Appreciated Stock and a Legacy Gift
Connie has enjoyed investment success and owns substantially appreciated tech stock. Comfortable with her long-term financial outlook, she donates stock valued at $50,000 to the Harvard Law School Annual Fund. She pays no capital gains tax on the stock’s appreciated value—a welcome tax benefit.
In conjunction with making the gift of stock, Connie plans a blended gift by modifying her estate plan to include support for our work. Specifically, she designates that 25% of the value of her residuary estate be given to Harvard Law School to support our endowment fund. This arrangement meets Connie’s goals of providing for loved ones through her estate and making a major gift to support Harvard Law School.
All examples in this newsletter are for illustrative purposes only.
Giving Techniques That Can Increase Income
The Charitable Gift Annuity
A charitable gift annuity is a contractual agreement between you and Harvard—part gift and part annuity. In exchange for your gift, we agree to pay a specified annual amount to you and to another beneficiary, if you include one (two people maximum) for life. The annual payment percentage is fixed and is based on the annuitant’s age, the gift amount, and when payments begin (deferring payments can provide a higher payment rate). Part of each gift qualifies for an immediate income tax deduction. Harvard’s minimum for a gift annuity is $25,000.
|Age(s)||Present CGA Rate||Deduction*|
|75||6.7%||28.8% of gift amount|
|75, 75||5.9%||16.5% of gift amount|
The Charitable Remainder Trust
With a charitable remainder trust (CRT), after you transfer property (cash or securities, for example) to the trust, the trust pays an income for life (or a period up to 20 years) to the named beneficiary or beneficiaries (there can be more than two). Your annual payment can increase as the trust principal appreciates; it can also go down if the trust assets do not appreciate. At the end of the trust term, the remaining amount is distributed to Harvard Law School as a gift and you can designate the purpose for which it is used. There is a great deal of flexibility regarding how benefits are paid and how beneficiary arrangements are specified. Your gift qualifies for a charitable deduction equal to the present value of the deferred gift we will receive. Harvard will be trustee of your trust and provide the trust document at no charge. Payout percentages typically range from 5% to 6.5%. Harvard’s minimum for a charitable remainder trust is $150,000.
What’s Right For You?
Blended gifts are unique—in fact, they are as unique as you are. There are many options and combinations that can help you meet personal and charitable goals in highly individual ways. Any asset that you might use to make a gift can likely be included in blended gift planning. Please contact us if you would like to know more. Working together, we can help identify a blended gift strategy that fits your planning needs in a meaningful way. Thank you for thoughtfully supporting Harvard Law School.