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UT Austin Gift Planner

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Welcome to The University of Texas at Austin Gift Planner, a resource for professional advisors in the estate and financial planning industries. The Gift Planner provides practical information on gift planning issues, reports new developments in charitable giving techniques, connects you with leading professionals, and informs you about key events and resources at UT Austin.

Dec. 10, 2009

UPCOMING EVENTS

Houston professional advisors luncheon

Feb. 11, 2010

Gift Planning partnering institutions

Gift Planning is partnering with the gift planning offices of nine other academic institutions — Baylor College of Medicine, Texas A&M Foundation, Rice University, University of St. Thomas, Texas A&M Health Science Center, UT Health Science Center, University of Houston, MD Anderson Cancer Center, and Baylor University — to host a luncheon at the Junior League in Houston for professional planning advisors who focus their services on lifetime and testamentary planning, wealth management, estate planning, and philanthropic giving opportunities. This partnership’s mission is to encourage thoughtful philanthropic planning discussions by individuals and families by giving planning professionals in the Houston area an opportunity to hear from a leading national voice on philanthropy. John Warnick, a senior partner in the Denver firm of Holme, Roberts & Owen, LLP, will present “Trustees, Beneficiaries and Charities — New Planning Suggestions for Happier Donors and Flourishing Families.”

Professional Advisors Day

May 14, 2010

The University of Texas at Austin, ACES Building

Gift Planning will host the third annual Professional Advisors Day on May 14, 2010. We are currently recruiting speakers to present on continuing education topics and exciting projects and research happening at the university. We will also host an insider’s tour of the Texas Advanced Computing Center’s Visualization Laboratory, a cutting-edge research environment designed to inspire collaboration and discovery. The VisLab supports research across all disciplines from physics and engineering to economics, architecture, and the liberal arts. Nearly 100 professional advisors attended last year’s event and we hope to equal or better that attendance this year, so mark your calendars.

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IRA ROLLOVER SET TO EXPIRE

Your clients may be interested to know about a law that is set to expire Dec. 31.

Extended charitable IRA legislation allows you to make charitable gifts by transferring funds from your IRA without incurring tax consequences. (Congress is considering a further extension to this legislation, but the current expiration date is Dec. 31). You can accomplish the gifts by contacting your IRA plan administrator — and the transfers are not included in your taxable income and are not tax-deductible.

You must meet these guidelines:

  • You are age 70½ or older at the time of the gifts.
  • Your gifts total $100,000 or less in 2009.
  • You transfer funds directly from your IRA.
  • You transfer the gifts outright to one or more qualified public charities, but not supporting organizations, gift annuities, charitable trusts, or donor advised funds.
  • You complete your gifts by Dec. 31, 2009.

Note that for the calendar year 2009, required minimum distributions are waived from IRAs and other qualified retirement plans.

Please contact Gift Planning at 866-4UTEXAS or giftplan@www.utexas.edu for more information or if a client is interested in making a transfer before the end of 2009.

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PEDIATRIC INSTITUTE NEARS FUNDING DEADLINE

The University is seeking private support to help complete the Dell Pediatric Research Institute, a state-of-the-art medical research facility in Austin. Research at the institute will advance understanding of childhood diseases and disorders and bring pediatric care in central Texas to a new level. The institute is being created as a result of a $38 million challenge grant from the Michael & Susan Dell Foundation. The foundation’s commitment, announced in 2006, has inspired gifts from other private donors, including the RGK Foundation, the Bank of America Foundation, and the Topfer family. The institute has also received a significant investment from The University of Texas. As of November 2009 the funding gap stands at $9 million to meet the Dell challenge; $1.75 million of this amount must be raised by Dec. 31, 2009. Questions? Please feel free to contact a member of our Gift Planning team at 512-475-9632.

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CREATING AN ENDOWMENT AT UT AUSTIN

Endowments at The University of Texas at Austin are a sound investment in a better future, providing permanent support for the University. There are many endowment opportunities and funding levels available at the University to match a donor’s interests, from professorships to undergraduate scholarships and graduate fellowships to deans’ and president’s excellence funds.

A donor may take up to five years to fund an endowment, and once it is officially established, the donor or anyone else may continue to add to its principal at any time. Moreover, by selecting the title of an endowment, a donor can create a legacy at the University, forever linking their name or that of a family member, friend, or organization to scholarly excellence at the University.

Endowments may be established by a one-time gift, a series of gifts, a pledge paid over a period of years, wills, trusts, gifts of appreciated assets, or by a combination of these. The gift is invested, and proceeds are used to support the purpose designated by the donor. The principal is never spent.

Endowments may be designated to benefit specific academic or nonacademic departments, or the donor may request that the president of UT designate an area of need at the institution.

Various types of endowments are listed below, but endowments can cover other purposes that may fall outside these general categories:

Endowment Funding Levels*

ENDOWMENT TYPE MINIMUM GIFT FOR ENDOWMENT
Faculty chair $1 million
Professorship $300,000
Endowed Presidential Fellowship (graduate) $100,000
Graduate fellowship $50,000
Endowed Presidential Scholarship (undergraduate) $50,000
Graduate research $40,000
Undergraduate scholarship $25,000
Program support $25,000
Undergraduate research $20,000
Endowed book fund $10,000

* The minimum funding levels for the types of endowments shown are set by the UT System.

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GIFTS OF CLOSELY HELD BUSINESS INTERESTS

Much of the wealth in the United States is held in closely held business interests. Texas alone has nearly 1 million registered private corporations and partnerships. Yet many business owners and the charities they support may not realize that those business interests can make excellent vehicles for charitable giving. While gifts of closely held business interests do present legal, tax, and business considerations, they can also provide a unique opportunity for a donor to achieve his or her philanthropic goals while avoiding potentially negative tax consequences.

Benefits to the donor

Gifts of closely held business interests can provide a significant benefit to a donor who already intends to sell his or her business to a third party or other family members. Often the donor will have little or no cost basis in the company and thus would be liable for significant long-term capital gains tax upon the sale of his interest in the business. By donating that interest or some portion of it, a donor can avoid most, if not all, of those capital gains taxes. In addition, the donor will receive a charitable deduction for the value of the donated business interest.

The timing of these gifts in the life cycle of a business can be critical, and a prospective donor must involve The University of Texas at Austin (or any other charity) before any sort of arrangement is made with a potential buyer. While the best situation is to have a buyer waiting in the wings, there can be no legal obligation or agreement that requires UT to sell the donated interest to that buyer. Once UT receives the assets of the business, the University is then free to sell the donated interest to the same buyer purchasing the remaining ownership interests. It is important to note that generally charities do not want to hold on to ownership interests in privately held companies for an extended period of time. The goal is to sell the interests as quickly as possible, so knowing that there is an interested buyer, whether it is a third party or the company itself in the case of a redemption, makes this type of gift more attractive to a charity.

Types of business interests that can be donated to charity

Owners of privately held stock in both “C” and “S” corporations can use that stock to make a charitable gift as long as the stock is transferable according to the founding documents of the company. UT will also consider whether the corporation has a yearly redemption limit, as limitations on the University’s ability to sell the stock back to the corporation may affect whether the University will accept the gift.

Outright gifts of privately held stock can make a very desirable gift for a donor who has excess cash reserves in a closely held business and wants to bail out the cash (this scenario can also apply to partnership shares). When the business buys the shares back from UT, the donor has no reported income from the sale and receives a charitable deduction for the fair market value of the contributed shares as established by a qualified appraisal.

As an example, assume that donor Tex Longhorn owns 90 percent of the outstanding shares of a C corporation, or 900 shares. Tex contributes 100 shares valued at $100,000 to UT Austin. The corporation buys the 100 shares and then retires the shares. The result? Tex receives a $100,000 charitable deduction and does not have to report $100,000 as income. Tex still owns 88 percent of the company (800 of 900 shares). Once the company buys back the shares, the University has received a $100,000 cash gift, and the corporation has $100,000 fewer retained earnings.

One limitation on giving privately held stock is Sub-S corporation stock. Charitable organizations qualify as Sub-S shareholders, but charitable trusts do not. A charity’s share of the net earnings during the period of ownership plus the capital gains realized when charity sells the shares are considered UBTI — unrelated business taxable income — and may result in payment of income tax. For a donor with an interest in a Sub-S corporation, it may be better for the corporation to give assets to UT Austin in lieu of shares.

A donor may also transfer partnerships interests in an LLP to charity.* Like privately held corporate stock, partnership interests must be transferable in the founding documents of the partnership. Some partnership agreements may limit the availability to transfer ownership after the initial formation of the business. On the other hand, some partnership agreements specifically provide for a special charitable class of limited partners who are exempted from future financial requirements.

Limitations

In some instances, it may not be feasible (or legal) for a charity to be an equity owner in a business. This is true in the case of law firms and CPA firms, where equity owners must be licensed members of the profession.

Charities also consider the nature of the business to determine whether to accept a gift of shares or ownership interest. For example, companies that specialize in alcohol, tobacco, weapons, or pornography might be excluded from consideration, as might companies with investments in certain foreign countries.

In the case of gifts to The University of Texas at Austin, the approval of both the UT System and the Office of the General Counsel is required before UT can accept a gift of closely held business interests. The internal review can take several months, so donors interested in making this kind of gift should be aware that it can be a lengthy and sometimes complex process.

For closely held stock, the donor should be prepared to provide the University with financial and valuation information on the stock, including appraisals and/or statements of value. Copies of any applicable shareholder agreements and buy-sell agreements must be provided, especially those that include any restrictions on the transfer of the stock.

For partnership interests, at a minimum the University will require copies of the limited partnership agreement and amendments, the proposed assignment of interest, and financial documentation sufficient to describe the assets of the partnership and their valuation. Other factors the University will consider include the donor’s relationship to the institution; any administrative obligation the University or UT System would assume, such as monitoring the partnership for unrelated business income tax; whether the partnership agreement provides for a defined distribution/termination event or date; and whether the University or UT System would be held liable for debts of the partnership.

Privacy concerns may influence a donor’s decision to make a gift of closely held business interests. For example, The University of Texas at Austin is an entity of the state of Texas and thus subject to the Freedom of Information ACT (FOIA). As a result, the financial information of the company, which the University requires in order to determine the viability of a gift of closely held business interest, could become subject to FOIA as a result of the gift. For charities that operate a separate private foundation, it may be possible to go through the foundation and avoid FOIA concerns, but donors need to be aware of this potential pitfall.

Another important issue for donors to consider is the appraisal of the value of the business. Business appraisals can be both complicated and expensive. This is another reason why the time when a donor plans to sell their business can be an ideal time to also make one or more gifts to charity. Generally, the sale of a business necessitates an appraisal and valuation of the business, so the donor would not incur the extra cost to have a separate appraisal done.

For more information about how a donor could make a gift of closely held business interests to The University of Texas at Austin, please contact a member of the Gift Planning team at 512-475-9632.

* UT will not accept interests in general partnerships due to the state constitutional limitations on incurring state debts and the risk of future liability or debt.

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GATES GIFT BOOSTS COMPUTER SCIENCE COMPLEX

Bill GatesOne of the nation’s leading computer science departments is a big step closer to having a new state-of-the-art home, thanks to a $30 million challenge grant from the Bill & Melinda Gates Foundation.

The $120 million project, which will consist of two buildings and a connecting atrium, will be named the Bill & Melinda Gates Computer Science Complex in honor of the gift. The Gates Foundation gift brings the total money raised for the complex to $60 million. The College of Natural Sciences must raise the remaining $60 million before construction can begin.

“This investment will advance the University’s computer science program and help prepare future generations of innovative leaders,” says Bill Gates, co-chair of the Bill & Melinda Gates Foundation. “We believe it will also complement our foundation’s wider goal, to increase the number of students who graduate from high school ready to succeed in college, and then the number of students who graduate from college.”

The Gates Foundation joins the Michael & Susan Dell Foundation in contributing to the building campaign. The complex’s north building will be named Dell Computer Science Hall in honor of a $50 million gift the Dell Family Foundation made to the University of Texas System, of which $10 million will be used for the computer science complex.

The Department of Computer Science is currently scattered among six buildings across campus and has more than 900 undergraduate majors, 250 graduate students, and 52 faculty members. The new Gates Complex will bring the entire department together for the first time and will feature state-of-the-art laboratory space, classrooms, faculty and graduate student offices, a 200-seat lecture hall, and more than 24 discussion areas and seminar rooms.

For more information about giving to the Computer Science Complex, contact Glenn West (512-471-9723, glenn.west@mail.utexas.edu) or Kay Thomas (512-471-3299, thomaskay@mail.utexas.edu).

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