Quick Question for DU Estate/Tax attorneys, CPAs, or anyone who "gets" Endowments:

[gateley]

1. Friend of mine wants to leave a $50,000 endowment to a school.
2. Would interest income off of that $50,000 be taxable?

She told me even the IRS didn't know the answer (she apparently couldn't get through to the person/people who would know, but was so frustrated by all the transfers finally gave up).

I told her DUers know EVERYTHING -- I'll ask!

So, if you can give a quick answer and maybe a little info, thank you so much! :hi:

You guys are SMART!

[Uben]

1. I've never heard of a school being taxed....

...as long as it is a non-profit school,

[gateley]

4. Good point! Thanks!

[Denninmi]

2. Hi.

I'm a paralegal for a probate/estate planning attorney.

Your friend is probably doing what is called a "Charitable Remainder Trust" -- the $50,000 would be put in trust for the school, and would pass to the school upon your friend's death. Until that time, your friend would get the income stream (interest, dividends, annuity payments, whatever, depending upon how it's invested) until his/her death. And, YES, as general rule, would almost always be taxable income to your friend. But, as with anything, there are various ways it can be done, so the exact answer would be based upon the specifics, but basically, it will be taxable.

Here's a little link to the most basic information on this type of trust.

http://www.investorwords.com/830/charitable_remainder_trust.html

Now, if your friend is just outright donating the funds to the school, as long as the school is non-profit, the interest the school would be paid on the funds annually would not be taxable to the school.

But, I'm assuming based on your question that it's more likely a case where your friend is getting the income stream.

[gateley]

6. Wow! Thanks! I've passed along your response but it made me realize, I

ASSUMED she was going to leave this to them in her Will, never even occurred to me she was planning on doing it now while she's still alive and kicking, :7 I'll find out for sure.

:hi:

[HopeHoops]

3. I think Uben is correct. If it is a private for-profit school, then it is almost certainly taxable.

And "the IRS didn't know" is bullshit. Your chance of getting THROUGH to someone who knows is roughly that of getting bitten by a poisonous snake in a hot air balloon while being struck by lightening, so somewhat better than winning the lottery, but still pretty bad. The one thing you can DEFINITELY count on is that the part of the IRS that DOES know will be sending along a tax bill if you owe money.

A non-profit or public school should not be taxed.

[gateley]

5. Thanks! Yeah, I figure so many people at the IRS are just people like me --

who get hired to do a j.o.b. In this I agree with the Republicans -- Government is TOO BIG! :hi:

[HopeHoops]

7. I've had a lot of dealings with the IRS and I didn't mean to insult their employees in any way.

The problem isn't the people - they all have seemed quite pleasant and knowledgeable - but rather the inability for them to access records to even have a fucking clue what answer to provide. Access times aren't bad but you can still get bounced around six times before you get to someone who can even pull up the necessary files. Sure, it is a huge monster with too many arms and legs, but it also has a huge job to do and unfortunately the part it does best is sending out notices, not answering questions as to why you received them.

[gateley]

10. I've also had good dealings with the IRS and they've helped me

a lot. I didn't mean to disparage them, either. :hi:

[HopeHoops]

11. The people we talk to there are just grunts like the rest of us, working with the fucked up system.

I have to say though, the wait time has gotten a LOT shorter over the years.

[MineralMan]

8. Where is the interest going? If it is going back into the endowment

fund, then no taxes. If it is paid to the person who created the endowment, it's likely to be taxed as interest. The taxation will be based on who gets the beneficial interest. Any good tax person or CPA can advise, and that advice should be gotten from such a person, who will explain the entire thing to your friend. DUers will give you lots of advice, but they won't know the details of the arrangement, so the advice will be pretty useless to your friend. A professional will find out the details and advise based on those details. It can all get pretty complex pretty quickly.

[gateley]

9. Very good points. I don't know where the interest is going, and I

don't have the details. I assumed a lot (I know) like it was to be bequeathed and that she wanted them to be able to spend the interest income. See? Stuff that a professional will have to know. :blush:

I told her to contact a tax attorney or CPA and she said they would probably charge her. I thought, you've got $50K to give to a school and you're worried about how much contacting someone will cost? Then I realized it's probably because of that frugality that she HAS the $50K to gift. :7

Thanks! :hi: