The graduating class of Morehouse College received an unexpected gift from their commencement speaker. Mr. Robert F. Smith offered to forgive all the student loans for the class of 2019. Mr. Smith is a billionaire, philanthropist, investor, and fellow Austinite who announced his generous offer to the students this past Sunday. He said, “My family is going to create a grant to eliminate your student loans!”
The announced figure was $40 million. There are about 400 men graduating from Morehouse College so the average debt per student is $100,000. Quite an offer.
The beauty of his gift is that he can watch these young men bear fruit. He will witness firsthand how it will multiply many times over for generations to come. He added, “Now, I know my class will make sure they pay this forward.”
Individuals often wait until they die to give their money away for fear of it running out while they’re still living. Is one strategy better than the other? It’s a personal choice, of course, but giving your money away while you’re alive will allow you to observe the joy of helping others.
Do not withhold good from those to whom it is due, when it is in your power to do it. ~ Proverbs 3:27.
Are you blessed with financial resources? If so, here are a few ways you can help others.
Loan Forgiveness. You might not have $40 million sitting in your bank account but if someone owes you money, you can forgive their debt. A generous offer to those in debt, for sure. However, let them know it will likely be reported as taxable income. For example, if someone owes you $100,000 and you forgive their note, they’ll owe taxes on this amount.
“At the end of every seven years you must cancel debts.” ~ Deuteronomy 15:1-2.
Private Annuity. Do you want to help your alma mater in other ways besides paying off the entire debt for this year’s graduating class? A private annuity may be an option. It will allow you to donate appreciated property like real estate or equities in exchange for an income stream. Let’s say you own a $500,000 piece of property with a low-cost basis. If you donate the land to the school, they will send you monthly income for a certain period. In addition to the fixed income, you’ll receive a tax deduction for the fair market value of your land.
Charitable Remainder Trust. This trust, like the private annuity, works well with appreciated assets. When you transfer assets to the trust, you’ll be able to sell them and diversify your holdings while avoiding a capital gains tax. Let’s assume you own $1 million worth of Amazon stock – your only investment. After the shares are transferred to the trust, you’ll be able to sell the stock, buy new investments, receive monthly income, avoid the capital gains tax and get a tax deduction. The charity will receive your assets after you die, thus the term “remainder.”
Donor Advised Fund. Establishing a Donor Advised Fund (DAF) will allow you to contribute cash or securities to your account and then distribute your donations over time and as you see fit. If you’re not sure who should receive your gifts, this is an excellent vehicle because you can bunch, or consolidate, your donations to receive a tax deduction and defer your distributions. The contributions are irrevocable, but you’ll be able to invest the assets inside the fund allowing you to control your investments and distributions.
Direct Gift. If you know the who, what, when and why for your donation, then a direct gift makes sense. If you want to give $100,000 to your favorite charity, you can create a direct link to the institution and bypass setting up a new account, trust or foundation. You’ll be able to deduct the fair market value of your donation.
Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this,” says the Lord Almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that there will not be room enough to store it. ~ Malachi 3:10
Mr. Smith’s gift is breathtaking and monumental. It will allow these young men to hit the ground running unencumbered by debt with an opportunity to make an impact from day one. Morehouse College has some notable alumni like Martin Luther King, Jr., Edwin Moses, Spike Lee, Samuel L. Jackson and Herman Cain. Who knows, maybe a few men from the class of ’19 will join these legendary graduates as a result of their good deeds and works.
Et Facta Est Lux (And there was light) ~ Morehouse College Motto
May 20, 2019
Bill Parrott, CFP®, CKA® is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation.