Donors Like Option of Investing Alongside University Endowments

An increasing number of donors are taking advantage of plans that allow them to invest their charitable trusts alongside a university’s endowment, reports The Wall Street Journal.

Harvard University, in Cambridge, Mass., was the first institution to offer such an option four years ago, and now several other universities have received permission from the Internal Revenue Service to offer the plans. Among them: the Massachusetts Institute of Technology, Stanford University, and the University of Notre Dame.

Donors who set up charitable trusts at the institutions receive regular payments from the trusts, which are invested in the university’s endowment portfolio. Because of the size of endowments like Harvard, the institution has access to investment options most donors do not—such as hedge funds.

After a donor dies, money left in the trust goes to the university.

Donors who invest in charitable remainder trusts typically get an immediate deduction for the amount going to a charity. Some of the annual payments that the donor receives, however, may be taxed as ordinary income, rather than capital gains.

A donor could pay as much as 35 percent tax on the payments, rather than the 15 percent rate on capital gains. But for many people, the tax burden is offset by the higher investment returns endowments offer.

Read The Chronicle’s article on the investment option.

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