Charitable trusts – including the Charitable Lead Trust or CLT, and the Charitable Remainder Trust…
by Amy Leis
By Amy Leis, Financial Advisor, Janey Montgomery Scott, LLC, and a member of of Samaritan’s Planned Giving Committee, a volunteer group of the region’s leading financial professionals, lending their time and expertise to guide the charitable estate planning efforts.
Do you want to receive income for life?
Are you looking for a tax advantaged gifting opportunity?
Consider Charitable Gift Annuities (CGA). These irrevocable contracts, between an individual (or two) and a charity allow you to gift cash and/or appreciated assets to a charity and in return receive a fixed amount of money for your lifetime (the annuity). CGAs are also frequently arranged to cover joint lifetimes. It should be noted that instead of you and/or a spouse as the beneficiaries, you can also name a parent, sibling or friend.
Similar to other types of annuities, a portion of each payment the charity makes to you will be treated as a tax-free return of the original principal donated. These annuity payments are set at a fixed level and won’t increase with inflation. You can contribute appreciated securities which will be considered tax deductible at the time of the gift.
The contributed property is considered a part of the charity’s assets and payments to you are an obligation of the charity. The charity uses all of their assets to back the annuity, not just the amount you contributed. Continued below.
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The amount of annuity payments depends on the ages of the annuitants and the value of the assets donated. Charities can supply you with a gift annuity rate chart of the maximum rates offered, listed by actuarial age. Samaritan subscribes to the American Council on Gift Annuities (ACGA) rates which means the entire gift will be invested with only 1% spent annually on expenses. The money will be invested and held in reserve until the termination of the contract at the death of the annuitant/beneficiary at which point the charity keeps the remainder. Your heirs will not inherit anything from the CGA contract.
Deferred Charitable Gift Annuities have a similar set up—you can take the tax deduction in the year of the gift and receive income for life. However, in a deferred situation you can delay the first annuity payment for one or more years. This approach is a good fit for someone younger who is philanthropically minded and has appreciated assets but doesn’t need income until a later retirement date.
The benefits of a CGA include:
For example, Michelle Lewin, age 69, has $100,000 sitting in a money market account earning less than 1% per year. She gifts the assets to Samaritan’s Charitable Gift Annuity which in return will provide payments for life. She’ll be eligible for an immediate charitable deduction of $38,848. Additionally, she’ll receive 5% or $5,000 per year; $3,660 of it will be tax free with the remainder taxed as ordinary income.
These rates are for illustrative purposes only. Samaritan subscribes to the American Council of Gift Annuities suggested maximum rate schedules, which may be found here.
Interested in setting up a Samaritan Gift Annuity?
Contact Samaritan’s Chief Development Officer, Chris Rollins, CFRE, at (856) 552-3287 for a confidential, no-obligation illustration.