Washington and Lee University Class of 1960 Charitable Planned Giving Brochure

Dear Classmates, Last year, the global pandemic wrought disruption on every facet of our lives. Tragically, some lost loved ones, and everyone has missed traditional familial and social gatherings in one form or another. Not least among these missed gatherings was our 60th reunion at Washington and Lee.

Lucas Morel, John K. Boardman Professor of Politics, delivering the 2014 Founders’ Day address.

On March 4 & 5, we will join other Five-Star alumni to participate in a first virtual gathering to mark several milestones, including our 60th reunion.

While it seems a strange phenomenon, virtual sessions allow more participation for alumni who have foregone travel even in a non-COVID environment. Similarly, a virtual gathering gives access to esteemed speakers that may have otherwise been unavailable to make a trip to Lexington — a silver lining.

On Friday afternoon, the Five-Star Festival will feature the Institute for Honor Symposium beginning at 2:15 p.m. EST. We look forward to David Blight, Sterling Professor of History, Yale University, presenting “Frederick Douglass and the Ethics of Historical Memory.”

Our class is justifiably proud of the Institute for Honor, and the Class of 1960 Professorship in Ethics established on our 40th and 50th reunions.

Our shared financial commitment toward the total endowment is $2.25 million. The Lenfest Challenge provided matching funds for the professorship endowment. Our extraordinary contribution to our alma mater will prove relevant not only in 2021 but for the future.

Retired journalism professor Brian Richardson ’73 addresses the 2006 Institute for Honor.

In March 2020, Dennis Cross shared an update on the endowed funds’ finances with the class projects’ advisory board. Our class members have given $936,300, including planned gifts of $169,500, to the Institute for Honor, and $1,058,300, including deferred contributions of $330,000, to the Professorship in Ethics fund — a total of $1,994,600 — we have almost reached our total goal for the combined endowment with roughly $250,000 to raise.

I write to you to ask you to make a direct contribution or consider a planned gift to our class project. If you have included Washington and Lee in your plans, please let the university know so that we can count your gift.

Carl Bernstein, the former Washington Post reporter and winner of the Pulitzer Prize, at the 2016 Institute for Honor.

With Stacy Eastland ’71, W&L presents a few ideas for charitable giving in the attached booklet. Some of these options may be beneficial to you and your family.

In addition to the materials included and the advice of your tax advisors, you may wish to use W&L resources to design your gift. Jamie Killorin, director of gift planning, is available to help tailor your giving to fit your specific situation. Visit plannedgiving.wlu.edu to learn more.

Thank you for all that you give to Washington and Lee and for your commitment to the future.

Stay safe and be well!

The Class of 1960 Professor of Ethics and History, Barton Myers

David K. Weaver

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Best Ideas to Maximize the Tax Benefits for Reunion Giving to W&L As a result of tax reform under the Tax Cuts and Jobs Act (“TCJA”), which affects taxpayers in tax years 2018-2025, many itemized deductions previously claimed by individual taxpayers are either limited or outrightly repealed. In addition, the standard deduction has nearly doubled. Consequently, certain expenses are less likely to provide a tax benefit going forward and the number of taxpayers who will simply use the standard deduction rather than itemize is expected to increase. However, for taxpayers who have the ability to control the timing of charitable donations, there may still be a way to maximize their tax benefit by using either a “bunching” technique or by contributing to a donor-advised fund. For taxpayers who are age 70½, the benefits of a different technique, a qualified charitable distribution will be the most tax- advantaged strategy for charitable giving.

Deductions Generally Taxpayers are able to reduce their taxable income through the use of either the standard deduction or by itemizing deductions. The standard deduction is a flat amount based on filing status, and this amount has increased dramatically under the TCJA. Alternatively, taxpayers can choose to itemize their individual expenses if it results in a larger deduction.

Standard Deduction The standard deduction for a married couple filing jointly is $24,800 in 2020. There is an additional standard deduction of $1,300 in 2020 for taxpayers age 65 and older. The standard deduction is indexed for inflation annually.

For simplicity, the illustrations below assume a 2% annual inflation adjustment. The five year period mirrors the typical pledge period for 50th reunion and campaign giving at W&L.

Changes to Itemized Deductions under the TCJA Some of the more common types of itemized deductions include state income (or sales) tax, property taxes, mortgage interest and charitable contributions. For tax years 2020-2025, however, the treatment of many of these expenses has changed. For example, unless otherwise grandfathered under the old tax law, the mortgage debt for which an interest deduction is allowed has been reduced from $1,000,000 to $750,000. Additionally, home equity interest is no longer deductible. Further, the deduction for state income (or sales) and property taxes is limited to $10,000 combined. As a result, for some taxpayers the tax benefit of certain previously deductible expenses may no longer exist.

Example 1: Assume a married couple both over the age of 65 with the following expenses:

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• • • •

Mortgage has been paid off, so no mortgage interest $50,000 in state income taxes $20,000 in property taxes $20,000 donated to various charities (including W&L)

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In 2017, the couple would have itemized their deductions for a total of $90,000 instead of the $12,700 standard deduction. In 2021, however, the couple will only be able to take $30,000 in itemized deductions. That is because their state income and property tax deduction is limited to just $10,000.

As a result, if this couple’s charitable goals are influenced by tax benefits, then they may decide to stop their charitable donations since it no longer produces a significant tax benefit for them.

Although the tax benefit of certain itemized deductions has been reduced or eliminated under the tax law, taxpayers can maximize the tax benefit of charitable donations by implementing timing strategies.

Best Ideas to Maximize Your Itemized Deductions – #1 Timing Strategies Bunching Under the bunching technique, a taxpayer delays a year’s worth of charitable giving from one year to the next, but then gives double the amount to charity in that second year. While the total amount of giving stays the same, the total tax deduction claimed over multiple years is increased.

Using the same couple as from the previous example, they are limited to $10,000 in state income and property tax deductions due to the TCJA. Further, they don’t have any mortgage interest to deduct.

Their decision to make annual charitable donations or else to employ the bunching technique will impact their deduction as follows: Example 1A: $20,000 Charitable Donations Made Annually

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Example 1B: $33,333 Bunching Strategy Every Other Year

As the examples above illustrate, if the couple donates $20,000 annually, they will deduct $150,000 over a five-year period. Alternatively, if they increase their charitable donation amount in odd years beginning with 2021, but give nothing in even years, then their total deduction over the same five-year period will be $187,900. By implementing the bunching strategy, the couple will be able to deduct an additional $37,900 over five years, even though their total charitable donation amount ($100,000) remains the same. Assuming a 37% tax bracket, this is an additional tax savings of $14,023.

Donor-Advised Funds One problem with the bunching strategy is that it leaves charities short on funding in the off- years. A solution to this problem (as well as a potential for even greater tax savings) is to contribute to a donor-advised fund (“DAF�).

A DAF is a charitable entity that allows donors to make tax-deductible contributions to the fund in the year of the gift, but then keep the funds in the account until the donor decides to make distributions to a particular charity. As a result, the donor can realize an upfront tax deduction, although they have the option to spread their grant-making over several years. A potential benefit to keeping funds in the DAF is that they can be invested to grow over time, providing even more funds to transfer to charity in the future. Additionally, taxpayers can make donations of long term appreciated securities to the DAF, resulting in an additional tax savings by avoiding any capital gains tax that would have been paid if the security was otherwise sold. While taxpayers can certainly gift long term appreciated securities to individual charities and receive the same tax advantages, a gift of these securities to a DAF typically involves just one security transfer, not multiple transfers, generally making the process much easier. Income and capital gains in the DAF are tax-exempt and the value of the DAF is not included in the taxpayer’s estate. Generally, donor-advised funds should not be used to pay charitable pledges.

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Using the same couple as from the original example, if they make a $100,000 donation to a DAF in 2021, their total deduction during the 2021-2025 period will be as follows: Example 1C: $100,000 Donation to a DAF in 2021

By using a DAF, the couple will be able to deduct a total of $226,900 during this five-year period, compared to $150,000 with annual donations and $187,900 with the bunching strategy. Assuming a 37% tax bracket, that is an additional tax savings of $28,453 as compared to annual gifting, and $14,430 as compared to the bunching strategy. The couple’s total giving remains the same at $100,000, and they can direct the DAF to make $20,000 distributions each year (and potentially more if the funds in the account have grown in value).

Donor-Advised Funds The benefits of a DAF should be weighed against expenses related to the fund as well as any rules for making donations. Donors should discuss the potential benefit of this strategy with their tax advisor.

#2 Strategy for Taxpayers Age 70½ or Older Who Have an IRA For taxpayers age 70½, the most tax-advantaged way to make charitable gifts is a Qualified Charitable Distribution (“QCD”). This strategy allows up to $100,000 per year per taxpayer to be transferred directly from an IRA to a qualifying charity on a tax-free basis. Contributions to a private foundation or a DAF will not qualify. For a married couple filing a joint return, up to $200,000 may be utilized provided each spouse qualifies and no more than $100,000 is taken from each spouse’s IRA. The benefit to this strategy is that the IRA owner can exclude otherwise taxable IRA distributions from income. Although no corresponding charitable itemized deduction is allowed for such excluded income, this tax-free treatment equates to a 100% above-the-AGI-line deduction. Additionally, if the IRA owner has not taken their Required Minimum Distribution (“RMD”) for the year, the QCD can satisfy all or part of that requirement. QCDs may be used to pay charitable pledges.

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Example 2: Assume the same married couple as from Example 1, but with these additional facts:

• They are both over age 70½ • They have annual RMD requirements

Because this couple is at least age 70½, they can each choose to implement the QCD strategy. As a result, they can transfer $20,000 directly from their IRAs to a qualified charity (e.g., W&L) in partial satisfaction of their RMD requirements. By implementing the QCD strategy, their tax benefit would be as follows: $20,000 QCD Annually; No Corresponding Charitable Itemized Deduction

By using the QCD technique, the couple will be able to exclude $20,000 each year from adjusted gross income while taking the standard deduction. Effectively deducting a total of $244,800 during this five-year period, compared to $150,000 with annual donations, $187,900 with the bunching strategy, and $226,900 with the DAF strategy. Assuming a 37% bracket, that is a tax savings of $90,576 over five years.

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Helen and Bob Cairns ’57 visit with Dennis Cross (left), former vice president for University Advancement.

Bob Cairns ’57 sports a W&L tie while visiting campus.

The Essence of W&L WHEN HELEN AND BOB CAIRNS ’57 visited W&L for the Five-Star Festival last fall, they decided to take a short detour to the Sigma Nu house. Bob was a member of the fraternity and thought it would be fun to stop in for a quick stroll down memory lane. The couple didn’t expect to be greeted so warmly by the small group of fraternity brothers who were there during the visit.

After leaving a lively conversation marked by friendliness and intellect, the Cairnses felt a sense of gratification regarding their two recent split-interest gifts benefiting the university.

“Giving young people the opportunity to grow in the ways we want them to grow, like those young men at the Sigma Nu house, is a wonderful thing,” Bob said. “It’s the idea that the essence of W&L can be transferred forever.”

The Cairnses considered several planned gift options but ultimately decided that a gift annuity worked best for them, and one of the strongest influencers in their decision is that they are able to support the

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institution they love now rather than waiting until after their deaths, as with a bequest.

“Some of the money is a gift now, and some can support us now, and then when we both die, W&L has the remainder,” Bob said. Shortly after making their gift, the couple decided to make a second split-interest gift to Washington and Lee. “I think it is one of the great universities in the world,” he said.

It is clear that Bob has plenty of school pride, but he did lament the fact that women were not admitted when he was a student. Otherwise, he lauded the professors as challenging, the administrators as supportive and the environment as welcoming. From an abysmal performance by the whole class on one of Professor Jack Behrman’s economics exams to winning a math scholarship at the end of his junior year without even knowing it, he has many memories that illustrate how formative those four years were for him.

Bob earned a degree in physics and then worked as a mechanical engineer before joining the Army. He served for six months on active duty and fiveand-a-half years in the Reserves. He went into sales for Consolidated Electrodynamics Corp. because he was excited about the organization’s contributions to space exploration.

Once those programs became operational, he explored investment real estate and enjoyed a successful career lasting more than 30 years.

Helen serves on the Orlando Health Foundation board of directors.

As the Cairnses witnessed during their last visit, the essence of W&L lives on, indeed. They plan to visit campus again for Bob’s 65th reunion in 2022 and hope to see many of his classmates during the celebration.

And as for split-interest gifts? “I heartily recommend them to anyone who wants to support W&L right now,” concluded Bob.

Our Planned Giving website has a fresh look and helpful, new resources to support legacy gifts.

Check it out at plannedgiving.wlu.edu.

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Best Ideas for Charitable Gifts That Occur at Death #3 Bequest under the will of the surviving spouse Assume a married couple, Mr. and Mrs. Smith, both 82 years of age would like to make a bequest under the survivor’s will of $200,000 to their favorite charities (including W&L):

#4 Name W&L as Beneficiary of Life Insurance Policy The facts are the same as Example 3. The couple owns a paid up life insurance policy which will pay $200,000 on the death of the surviving spouse. The couple continues to own the policy, but decides to name their favorite charity (W&L) as the beneficiary of the policy.

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#5 Current Gift of Paid Life Insurance Policy The facts are the same as Example 5, except the couple gives their paid up life insurance policy to W&L. An income tax deduction is available for the appraised value of the policy.

#6 Life-Income Gift with a Charitable Gift Annuity Example 6: The facts are essentially the same as Example 4. The couple is 82 years of age and are targeting around $100,000 to pass to their favorite charity on the death of the survivor. The couple would like to explore purchasing a charitable gift annuity from their favorite charity (e.g., W&L) in a manner that targets $100,000 on the death of the survivor. At the time of the gift of the annuity the IRC Section 7520 rate is less than 1%. The couple explores transferring $200,000 of a low basis stock to their favorite charity in exchange for an annual annuity of $11,600 until the death of the survivor using the charitable gift annuity technique.

A charitable gift annuity is a contract between a donor(s) who transfers assets to a charity in exchange for the charity’s promise to pay an annuity to the donor(s) or another. The annuity is a fixed sum payable annually or more frequent installments. The transaction is treated in part as the purchase of an annuity and in part as a gift to the charity.

The annuity represents a general obligation of the charity. Annuity rates are generally very conservative (set at 50% of the fair market of the asset that is transferred) and set by the American Council on Gift Annuities in order to ensure that the charity receives a significant benefit.

A charitable gift annuity give rise to the following tax issues: (i) the amount of the charitable contribution deduction allowable to the donor; (ii) if low basis property is contributed to the charity, the amount of gain that is annually allocated to the donor; and (iii) the tax treatment of the annuity payments to the donor.

With a charitable gift annuity, the adjusted basis of the property is allocated between the gift portion and sale portion is ratably reported over the donor’s life expectancy. A portion of each annuity payment is excluded from gross income as a return of consideration paid. The gift portion of the charitable gift annuity is eligible for an income tax deduction in year one. In order to get the favorable income tax treatment, the annuity must be either only the donor and a designated survivor annuitant.

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A diagram of the technique is below: 82

$200,000

$11,600 Until the

Results of Example 6: The donors contribute $200,000 of a stock that has a basis of $100,000 in consideration for a joint lifetime annuity of $11,600 or 5.8%. For the first 11 years of the annuity, $5,058 of the annuity is taxed at capital gains rates and $1,485 is taxed at ordinary income tax rates. After the first 11 years of the annuity, the entire $11,600 of the annual payment is taxed at ordinary income tax rates. The donor’s will receive a charitable deduction of $84,668 in year one. On the death of the surviving spouse in the charity receives the residuum estimated to be $100,000. For more information about charitable gift annuities, please see: plannedgiving.wlu.edu/giving-options/life-income-gifts/charitable-gift-annuities #7A Create a Charitable Remainder Unitrust Assume the same goal of Example 4. A married couple both 82 years of age would like to make a bequest, at the time of the survivor’s death, of $200,000 to their favorite charities (including W&L). They own numerous low basis securities. They are willing to make an irrevocable pledge for that gift as long as they can change their mind as to which charities receive that gift. Congress, since 1969, gives that couple a very advantageous income tool to make that pledge. The tool is a Charitable Remainder Trust (“CRT”). The IRS has also published a form of a CRT document that it will honor.

What is a CRT and what are some of the key provisions and benefits?

1. The donor contributes assets to the trustee of a CRT that annually pays to the donor a fixed dollar amount (a charitable remainder annuity trust or “CRAT”) or a fixed percentage of the then value of the trust (a charitable remainder uni-trust or “CRUT”). The donor could also be trustee of the trust. The payments can be for the donor’s lifetime.

2. The donor is only taxed on the annual payments. Generally, the donor will be taxed on those payments: first on the ordinary income and dividend income earned by the trust until it is all paid out; secondly, on the new capital gains income earned by the trust until it is all paid out; 12

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thirdly, on the old capital gains income inherent in the original contributed assets that are sold; and finally on the tax free income earned by the trust.

3. The contributed assets to the CRT, including low basis assets, can be sold without any immediate capital gains consequences. The sale proceeds can be reinvested in a diversified portfolio.

4. The donor will also receive a current income tax deduction for the actuarial present value of the assets projected to be paid to the donor’s favorite charities upon the donor’s death, which must be at least 10% of the value of the assets contributed to the CRT. 5. When the CRT terminates the remaining trust assets will pass to the donor’s then favorite charities without any estate tax being paid.

Learn more at: go.wlu.edu/charitable-remainder-trust.

The couple in this Example 7A has $1,000,000 in low basis securities. The couple would like to diversify out of that portfolio and apply the proceeds to a more diversified portfolio. With that goal, the couple would also like to compare the creation of a CRUT to the simplicity of selling the securities and reinvesting the proceeds in a diversified portfolio and making a bequest in the survivor’s will of $200,000 to charity.

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out making any gifts to charity. The terms of the CRUT provide that the annual payout from the CRUT will equal 10.28% of the then value of the CRUT. It is assumed that the survivor will live 20 years.

The income tax deduction in year one is $100,000, average annual income to the donors’ family $75,822 for their lives and son’s life. Projected future benefits to the family $2.2 million and $500,000 to charities.

For more information on a charitable remainder unitrust see: https://plannedgiving.wlu.edu/givingoptions/life-income-gifts/charitable-remainder-trust.

What are some of the key takeaways from the above calculations with respect to the assumed facts of this Example 7A? 1. The donor’s charities and the donor’s family benefits the most under the CRUT technique alternative.

2. The chief reason for that beneficial result of the CRUT technique is the delay in taxation of the donor’s low basis assets as represented by Column 4. The power of delaying the capital gains tax and the future earnings of the diversified portfolio is significant. When a tax is paid to the IRS the donor cannot invest that cash. The donor can keep investing the earnings of the portfolio that is not paid to the IRS. #7B — Name a Charitable Remainder Unitrust as the Beneficiary of your IRA for your Children In addition to being a very tax efficient technique for a donor who has low basis assets, a form of the CRUT technique may save significant income taxes and future estate taxes on IRA distributions to a donor’s descendants.

The Secure Act became effective on January 1, 2020. One of the changes brought about by the Secure Act was it eliminated the ability of a non-spouse beneficiary to “stretch” inherited IRA payments over his or her lifetime. The payments of an inherited IRA to a non-spouse beneficiary (e.g., a child or a grandchild of the donor) must be made over a 10-year period. This change eliminated the ability to have long periods of pre-tax compounding for a child or grandchild as a beneficiary of an inherited IRA. As noted above, a CRUT can be designed to last for the lifetime benefit of an individual, or for a term of years (which cannot exceed 20 years), before it terminates in favor of a charity. A CRUT could be designated to be the beneficiary of an IRA after the death of the IRA owner and his or her spouse. If a CRUT is designed to last for the life of an individual, before it terminates in favor of the remainder charity, the CRUT may last longer or shorter than 20 years depending on the individual beneficiary’s date of death. However, if an individual is the lifetime beneficiary of the CRUT and if the CRUT distributions that are not spent by the individual, those accumulated distributions are subject to future creditors (including a divorced spouse of the beneficiary) and future estate taxes.

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In order to eliminate those disadvantages, including the disadvantage of an amount of IRA proceeds accruing to charity that is inconsistent with the owner of the IRA stewardship goals, because of the timing of the death of the individual beneficiary, it may be advantageous for a trust for the benefit of the owner’s descendants be named as the CRUT term beneficiary. If a trust is named as the term beneficiary, the term may not be based on the lifetime of an individual, it must be for a designated term of years. The term of years cannot be longer than 20 years. It should be noted that income accumulated in a trust may be taxed at a higher marginal rate than the individual’s marginal rate unless the trust is designed to be a special trust that taxes the trust income to the beneficiary, instead of to the trust.

As a consequence, a form of the CRUT technique may substantially mitigate the income tax considerations of the new Secure Act 10-year rule and may provide the descendant beneficiary with greater estate tax savings and creditor protection than the pre-Secure Act stretch IRA payable to an individual would have provided. After the child’s death, the trust could be designed to continue for the IRA owner’s grandchildren or any other person the child appoints by his or her will. The trust beneficiary could also be designed in a manner in which it is neither subject to the child’s estate taxes nor the child’s creditors.

A diagram of the technique follows:

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#8 Give a Remainder Interest in a Residence, Farm or Ranch The facts are the same as Example 4. A couple aged 82 targets a $200,000 gift to their favorite charity (W&L) to take place on the death of the surviving spouse. The donors wish to give an undivided remainder interest in one of their residences, farm or ranch (https://plannedgiving.wlu.edu/givingoptions/retained-life-estates) which they believe will equal $200,000 at the time of their death to satisfy their donative intent. • The gift cannot be in trust. • Depreciation (computed on a straight-line method) and depletion must be taken into account to determine the value of the remainder interest and those values are discounted at an interest rate that depends on the federal rate in effect in the month of the transfer or either of two prior months. • While not a statutory requirement, most charities will require a detailed agreement detailing the responsibilities of the life estate owner and the remainderman charity. The agreement will generally detail not only the responsibilities during the lifetime owner, but also what happens on the death of the lifetime owner.

A diagram of the gift is shown below:

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Washington and Lee University Bequest Recognition Form (Confidential)

______________________________________________ Name(s)

___________________ Class Year

____________________ Date

In appreciation of Washington and Lee University and with the desire to contribute to its continued strength and success, I/we have executed and intend to keep in effect a provision in my/our estate plan for the university.

A conservative estimate of the current value of my/our provision is $ _________________________________________

Attached is a copy of the relevant document naming Washington and Lee as primary beneficiary For example, the page of your will or trust mentioning Washington and Lee, the beneficiary form from your life insurance or retirement plan.

My/our provision is made through the following planned gift: BEQUEST ❑ Bequest in a will

TRUST ❑ Bequest in a living trust ❑ Charitable remainder trust ❑ Charitable lead trust

OTHER ❑ Retirement plan assets [e.g., IRA, 401(k), 403(b)] ❑ Life Insurance ❑ Other _______________________________________ Continued on back All bequest documentation will be kept confidential in accordance with the university’s policies, procedures, and practices.

August, 2019

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On occasion, names of donors who have documented bequests may be listed in university reports or shared with class leadership. No bequest dollar amount will be directly associated with a donor’s name. Documented bequest dollar amounts will be aggregated and included in overall class totals at reunions.

Please state your preference: ❑ I/we give Washington and Lee permission to publish my/our name(s) in university reports and share with class leadership as having documented a bequest intention for the university and have our bequest intention figure included in aggregate totals. ❑ I/we prefer for this gift to be anonymous in that my/our name(s) will never be published in any university reports or shared with class leadership as having documented a bequest intention for the university— however, I/we wish that my/our bequest intention figure be added to aggregate totals.

If my intentions change, I/we will inform the university. _________________________________________________________ Signature

____________________________ Date

_________________________________________________________ Signature

____________________________ Date

Please return this form and relevant documents to: Jamie M. Killorin Director of Gift Planning Washington and Lee University 204 W. Washington Street Lexington, VA 24450

August, 2019

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60th Reunion Staff Contact Information Reunion Class Giving Erin Stringer Director of Reunion Giving 540-458-8424 estringer@wlu.edu Planned Giving Opportunities Jamie Killorin Director of Gift Planning 540-458-8429 jkillorin@wlu.edu

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