Stanford University pulled in more charitable donations in 2012 than any university in the country, according to the Council for Aid to Education (CAE). At the risk of sounding cargo cultish, maybe it's worth taking a look at how they do things. Here, I'm going to talk about some of the recent gifts they have received in the form of charitable gift annuities (CGAs).
A CGA is a contract, established between donor and recipient, in which a donor makes an initial gift and receives a fixed amount of money annually for the remainder of their lifetime in return. The donor also receives the associated income tax reduction.
At Stanford, like many other schools, the older the donor, the larger the annual return. A 50-year-old donor receives 3.7% of their total gift; a 60-year-old donor receives 4.4%, etc. Ideally, the person who made the donation departs this mortal coil with sufficient promptness and the organization with which they established the CGA winds up with a net profit of around 50%. Everybody wins.
The university's brochure, "Creating a Charitable Remainder Trust or Other Life Income Gift," makes the illustrative example of Joan Dickson. Dickson,
a 75-year-old widow, makes a cash gift of $100,000 to Stanford in exchange for a charitable gift annuity. Based on her age, she will receive annual payments of $7,100 from Stanford for the rest of her life. Joan is entitled to a charitable income tax deduction for current income tax purposes of around $48,000. Assuming she is in the 35 percent federal income tax bracket, she will save about $16,800 in income taxes, making the net cost of her gift approximately $83,200. Of the $7,100 Joan receives annually, only $2,868 will be taxed at ordinary income rates. She will receive the remaining $4,232 tax-free each year for 12 years.
From there, Dickson pays taxes on the annuity payments she receives as if they were plain old earned income. At the time of her death, she authorizes Stanford to invest what remains in a manner they see fit.
In recent history, Stanford has received two gifts in the form of CGAs worth more than a million dollars. According to Remember Stanford, their philanthropy newsletter, Germaine and Benjamin Eaton sold a property in San Francisco for $2.75 million; they used the money to set up a fund for medical research at the university. Mary Mears named Stanford as a beneficiary of her trust with a gift of just over a million dollars that will go toward undergraduate scholarships.
One of the cool things about CGAs is that they enable folks who otherwise could not afford to make a charitable gift to do so. These types of investments widen the demographic of people who can give back to their alma maters. As Milt Ritchie, a Stanford alum who set up a CGA in 2005, explains in another article from Remember Stanford, "We are not a family particularly well-endowed with money, so a charitable gift annuity was a reasonable way to include a gift for Stanford in the balance of our other retirement investments.”