One for the Books

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September 16, 2016


With college costs on the rise, donors who are looking for ways to make a direct, measurable impact have increasingly turned to helping people further their education as an avenue for charitable giving.

 

“Individuals with high net worth understand the importance of higher education,” says Scott White, Trust Product Owner, U.S. Bank Wealth Management. “A lot of them have seen the benefits — they’ve been promoted through the ranks, or they’ve started businesses — and they want to pass on those benefits to others with a similar background or future generations from their hometown.”

 

The average cost of tuition and fees, room and board, books and supplies, transportation and other expenses for the 2015-16 school year was $47,831 for private colleges and $24,061 for an in-state public college, according to College Board’s Trends in College Pricing, 2015. For many students who understand the value of a college education, this cost is a considerable financial burden.

The Private Client Reserve can work with your tax and legal advisors to help donors establish and administer all aspects of an endowed scholarship, giving them opportunities to make a difference in college students’ lives today and create a legacy that can potentially benefit future generations.

 

Establish an endowed scholarship

 

Endowed scholarship funds are designed to be permanent and perpetual.

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September 16, 2016


They may be established in the donor’s name or in the name of friends or family. Funds are invested in a diversified portfolio, and scholarships are awarded to individual students for each academic year.

 

Typically, an endowed scholarship is set up under a private foundation, says Michael Penfield, National Director of the Charitable Services Group at The Private Client Reserve. Each year, the fund must pay out 5 percent, which is the amount budgeted for scholarships. The minimum size for a private foundation is typically $2 million to $3 million. If working directly with a college or university, donors can fund scholarship endowments at smaller amounts. In addition, donors can specify in their will or trust documents that they want to leave a portion of their estate to the endowment.

 

Create scholarship criteria

 

“Many successful entrepreneurs were not the typical ‘A’ students in their classes,” Penfield says. “These individuals may be keen on doing something to help students who, like them, may not qualify for a lot of other scholarships or have other avenues to pay for college.”

High school students graduating at the top of the class likely will have access to scholarship funds through a college or university, and students from the poorest families may have access to financial aid, he adds.

 

It’s the students who have good, but not excellent, grades and who come from working-class or middle-class families who often need the most help paying for college.

 

Keeping those factors in mind, donors often designate three categories of scholarship criteria: community service, academic achievement and financial need.

 

Establishing an endowed scholarship can benefit an entire community.

 

For example, Penfield worked with one Private Client Reserve donor who set up a scholarship fund in a small Oregon town that provides every student who graduates from the local high school with an opportunity to attend college.

 

The only requirement for eligibility is that the families have to live in the town for a certain period of years.

 

“This gives all their kids a chance for a leg up,” he says.

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Administer the funds

 

The Private Client Reserve can help donors get the word out to high school counselors concerning the scholarship, Penfield says.

 

The Charitable Services Group can also design a scholarship application, set up a website to receive the applications and coordinate the award process.

 

Generally, a local committee will review the applications and choose the scholars.

 

After the recipients accept the scholarships and enroll in college, the funds are sent directly to the school’s business office.

 

Additionally, there are tax benefits associated with establishing an endowed scholarship.

Cash donations are eligible for a 50 percent deduction from an individual’s adjusted gross income in the year the contribution is made, White says. If the person is donating appreciated securities, the income tax deduction is 30 percent.

 

But for many donors, the greatest benefit comes from providing crucial opportunities to students. Some meet with the scholarship recipients each year and follow their careers, building lasting relationships.

 

“An overwhelming number of letters we receive from people who’ve received scholarships and want to thank the original donors, now long deceased, say, ‘No one in my family has gone to college; I am the first one,’” Penfield says.

 

“For the Charitable Services Group, scholarships are one of our favorite things,” he adds. “We help change people’s lives, one life at a time.” 

 

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Wealth Transfer , Online Exclusive