Making a Gift: Bonds
Strip or Zero Coupon Bonds
Strip bonds are an excellent way to make a leveraged
gift to the University of St. Michael’s College
and provide an attractive alternative to life insurance.
It is a terrific option for a donor of any age, and
provides an opportunity for a donor to make a significant
future gift for a modest investment today.
A strip bond is a corporate or government bond from which interest coupons have been stripped away. No interest income is payable on the bond until a fixed future date of maturity. The maturation date can be set, for example, to celebrate an anniversary or reunion year.
The key benefit to the donor is that the strip bonds are sold at the present value, which is much less than the future value. The donor is entitled to a charitable receipt for the fair market value of the bond at the time of the gift which they can then use to offset up to 75% of net income in the year of the gift with a 5 year carry forward provision.
| Interest Rate | Years to Maturity | Pre-tax cost | After-tax cost of a donated bond* |
|---|---|---|---|
| Interest Rate | Years to Maturity | Pre-tax cost | After-tax cost of a donated bond* |
| 5% | 15 years | $47,674 | $19,069.60 |
| 20 years | $37,243 | $14,897.20 | |
| 25 years | $29,099 | $11,639.60 | |
| 30 years | $22,728 | $9,091.20 | |
| 6% | 15 years | $41,199 | $16,479.60 |
| 20 years | $30,656 | $12,262.40 | |
| 25 years | $22,811 | $9,124.40 | |
| 30 years | $16,973 | $6,789.20 | |
| 7% | 15 years | $35,628 | $14,251.20 |
| 20 years | $25,257 | $10,102.80 | |
| 25 years | $17,905 | $7,162.00 | |
| 30 years | $12,693 | $5,077.20 | |
| 8% | 15 years | $30,832 | $12,332.80 |
| 20 years | $20,829 | $8,331.60 | |
| 25 years | $14,071 | $5,628.40 | |
| 30 years | $9,506 | $3,802.40 |
*Assumes a blended federal/provincial tax savings of 50% of the value of the donation.
This information provided is general in nature, does not constitute legal or financial advice, and should not be relied upon as a substitute for professional advice. We strongly encourage you to seek professional legal, estate planning and/or financial advice before deciding upon your course of action.