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Darren and Erica, ages 82 and 80, would like to make a gift to their favorite charity in response to the charity's current capital campaign. They like the idea of a potential naming opportunity with a large major gift. However, they don't believe it would be wise in the current economic climate to part with a large sum outright. They are willing, however, to give $250,000 if they can receive an income stream in return. Darren and Erica decide to donate $50,000 outright to their favorite charity and $200,000 to fund a charitable gift annuity. They will be entitled to an income tax deduction of $50,000 for the outright gift and $90,521 for the charitable gift annuity. The gift annuity will pay out the ACGA suggested rate of 5.9%, which will provide them $11,800 per year for the rest of their lives.
Faith, age 79, owns shares of a technology company's stock that she purchased 10 years ago for $25,000. With the growth of the technology sector during that time, Faith's stock has soared in value to $200,000. If she were to sell the stock, Faith would have a potential capital gains tax liability of $41,650. Faith decides instead to make an outright gift of $50,000 worth of stock and fund a gift annuity with the remaining stock valued at $150,000. Faith is entitled to a charitable income tax deduction of $50,000 for the outright gift and $74,561 for the charitable gift annuity. In addition, she saves $10,413 in capital gain on the outright gift and $12,570 on the gift annuity for an overall tax savings of $22,983. Faith will receive annual payouts of $9,900, of which $2,277 will be taxed at ordinary income rates, $5,398 will be taxed at capital gains rates and $2,225 will be tax-free return of principal. With this plan, Faith can bypass a portion of the capital gain and spread out the tax liability of the remaining gain over her life expectancy.
George is 75 years old and is interested in making a combination of an immediate gift and a life income gift with his favorite local charity. Specifically, George wants to give $25,000 outright to the organization and use $50,000 to fund a life income gift for his new wife, Hazel, age 63. The charity informs George that the funding amount for the life income gift is below their $100,000 minimum for funding a charitable remainder trust administered by the organization. While $50,000 is well within the organization's gift annuity funding range, Hazel is two years shy of meeting the charity's minimum age of 65 for entering a gift annuity contract. In addition to the outright gift of $25,000, George and the charity agree to enter into a $50,000 charitable gift annuity contract with the first payout deferred for two years. For the year in which the gift is made, George will take a total income tax deduction of $60,821 for the blended gift. Beginning in two years, Hazel will receive an annual payout of $5,000, of which $2,580 will be tax-free return of principal.
Harris, 65 years old, plans to continue working for another decade or so. He and his wife, Irene, age 63, own shares of stock that have doubled in value over the years. Harris and Irene appreciate the work of their local charity and would like to do their part to support its work. They are also interested in the potential charitable income tax deduction that they would receive when they make a gift. They have built up moderate retirement savings, but would like to ensure that they are receiving a good income when they retire. They decide to make an outright gift of $30,000 combined with a deferred charitable gift annuity of $300,000. In addition to the $30,000 income tax deduction, Harris and Irene will take a $120,722 deduction for the gift annuity. At an annuity rate of 6.7%, they will receive $20,100 annually beginning when Harris reaches age 75.
Jim and Kelly are 82 and 81 years old and in good health. They have a low rate of return on their CDs and are looking for a way to increase their income. Through discussions with the gift planner at their favorite charity, Jim and Kelly learn about the many ways they can contribute to charity while also planning for their future. They decide to fund a charitable gift annuity with $200,000. Based on their ages, a joint and survivor charitable gift annuity pays a 6% rate. Jim and Kelly will receive annual payouts of $12,000, part of which will be tax-free. They will also receive a charitable income tax deduction of $90,214 in the year of the gift. In addition to the charitable gift annuity, Jim and Kelly have set up an appointment with their attorney to include a bequest to their favorite charity in their estate plan.
Jim and Kelly meet with their estate planning attorney and discuss with him the assets that they might use to make a bequest to charity. While going through their portfolio, the attorney mentions that Jim's IRA will be subject to significant income taxes after Jim and Kelly pass away. Although the $400,000 IRA is a substantial asset, the distributions to their children will increase their adjusted gross income and may even bump them up to a higher tax bracket. In addition, it may also increase the size of Jim and Kelly's estates, subjecting their estate to federal estate taxes. After hearing this news and discussing other, more favorable assets to leave to their children, they agree with their attorney that the IRA would be the best candidate for a testamentary transfer to charity. The attorney explains to them that a codicil to their will is not necessary. Rather, he explains, Jim can simply execute a new beneficiary designation form for his IRA. Jim prepares a new form with Kelly remaining as the primary beneficiary and the charity as contingent beneficiary of the IRA.
Blended Gifts – Part I
Navigating the Unrelated Business Income Tax – Part II
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