fuel your philanthropic planning with gifts that pay income · 2020-04-03 · exploring life income...
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Exploring Life Income Gifts: Fuel your philanthropic planning with gifts that pay income
March 31, 2020
Partners For you
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The Office of Gift Planning helps BC alumni, parents, and friends achieve their philanthropic and financial goals.
Joel Carlton‐GysanAssociate Director, Gift Planning
Denise HeffronAssociate Director, Gift Planning
Partners For You
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The Office of Gift Planning helps BC alumni, parents, and friends achieve their philanthropic and financial goals.
Joel Carlton‐GysanAssociate Director, Gift Planning
Denise HeffronAssociate Director, Gift Planning
Life Income Gifts
• What is a Life Income Gift?
• Tax incentives are more favorable for Life Income Gifts than Estate Gifts.
• Eligible for income tax deductions• Avoid or spread capital gains taxes• Take assets out of an estate
But…estate gifts might make more sense in an overall financial plan.
What Is a Charitable Gift Annuity (CGA)?
A charitable gift annuity (CGA) is a simple contract between a donor and a charity that guarantees annual fixed income payments for life in exchange for a gift of cash or securities
• Payments can be immediate or deferred
• You can establish a CGA for yourself or a loved one
• Donors receive an immediate charitable tax deduction
• 100% of the remainder goes to a nonprofit of your choice
Types of Charitable Gift Annuities
Single life annuity
A single life annuity is based on the life of one person. Payments are made to this person for the rest of their life. At the end of their lifetime, any remaining funds go to the nonprofit.
Two life annuity
A two life annuity is based on the lives of two people. Payments are made to both people for life, then to the survivor. The rate is based on their ages and is determined by a two life table. At the end of the lifetime of the surviving person, any remaining funds go to the nonprofit.
Why a Charitable Gift Annuity?
BENEFITS:– Gift annuities are easy to execute– Beneficiaries receive fixed income– Donor can provide fixed payments for another person (i.e. mother‐in‐law, sister,
valued employee)– Establishing a gift annuity is easy and straightforward
TAX BENEFITS:– The donor may be eligible for a charitable income tax deduction based on the value
of the gift and age of the beneficiary– The income received is partially tax‐free to the beneficiary– At the end of the beneficiary’s life, the remaining balance is paid to the charity
outside of the donor’s taxable estate• Generally there should be 50% or more of the original gift left for charity
CGA Annual Payment Rates
Who determines the annual payment rate?• BC uses rates determined by the American Council on Gift
Annuities.
What determines the payment rate?• Age of the income beneficiaries at the time of the gift.• When income beneficiaries start receiving payments.
When can payments be received?• At BC, annuity payments are typically quarterly.
Sample Annuity Rates
*Age nearest birthday | **Effective January 2020
AGE* RATE**60 4.3%65 4.7%70 5.1%75 5.8%80 6.9%85 8.0%
Single Life
Advantages and Disadvantages of a CGA
Advantages
• Initial charitable tax deduction• Guaranteed fixed payments
for life• Partial tax free income for a
period of time• Impacting charities that you
care about
Disadvantages
• Lack of flexibility on income amounts. Only change allowed is if you’d like to discontinue annual payments and give the remainder of the annuity to the charity early.
CGA Donor Profile
Retired Professional, Age 75
• Recently widowed• Could benefit from more income • Wants to leave a legacy to her favorite charity
How a CGA Works
Cash$50,000
CGA50,000
Charity$25,000
(Approximately)
Generates income tax deduction of $22,514 based on an IRS discount rate of 2.2%
Generates annual life income of $2,900 of which $2,215 is tax free for 12.4 years. Effective payout rate 5.8%
At the end of life the remaining funds pass to the nonprofit free of probate, income tax and estate tax
Donor, Age 75 establishes a CGA with $50,000 cash
Cash$25,000
DGA25,000
Charity$12,500
(Approximately)Generates income tax deduction of $10,862. First payment made
March 31, 2030Generates annual life income of deduction of $1,750 of which $889 is tax free.
At the end of life, the remaining funds pass to the nonprofit free of probate, income tax, and estate tax
Donor Age 60Annuity Payment Deferred to Age 70
Gifted to BC as a Deferred Gift Annuity
Deferred Gift Annuity
As of 3/31/20
Who Can Benefit from a CGA?
• Individuals 55 years of age and older.
• Philanthropic individuals who would also like income security for retirement.
• Individuals with highly appreciated assets.
What is a Charitable Remainder Unitrust?
A charitable remainder unitrust (also called a CRUT) is an irrevocable trust, managed and invested separately, which provides a donor and/or their beneficiaries with income.
• The donor may be eligible to claim a charitable income tax deduction in the year in which the gift is made.
• Payments are variable amounts that are revalued annually based on the trust’s principal.
• At the end of the term or passing of the named beneficiaries, a charity receives the residue of the trust.
Why a Charitable Remainder Unitrust?
BENEFITS:– Beneficiaries receive variable income, based on a percentage of the fair market
value of the trust assets, revalued each year– You can name multiple beneficiaries– You can make additions to the trust– Can be funded with a variety of assets– Can be established during life or testamentary
TAX BENEFITS:– Donor may be eligible for federal, and possible state, income tax charitable
deduction– Donor pays no immediate capital gains tax on the transfer of appreciated assets– Reduce or eliminate estate taxes– At the end of the beneficiary’s life, the remaining balance is paid to the charity
Assets Used To Fund a CRT
• Cash
• Appreciated securities
• Appreciated real estate, including a vacation home or
investment property
• Your personal residence if you are planning a move
• Other complex assets
Advantages and Disadvantages of a CRT
Advantages
• Make a charitable donation while receiving income for life or for a term of years.
• Reduce current income taxes with a charitable income tax deduction
• Potentially reduce or eliminate your estate taxes
• Make a lasting impact
Disadvantages
• CRT is more complex than a gift annuity
• Payments fluctuate
Charitable Remainder Unitrust – Example
BC CoupleWorking Professionals, Age 63
• Enjoy supporting BC Athletics program• Are interested in significantly impacting program but
want to make sure they have enough in retirement funds
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CRUT – How It Works
Notes about payments…• Fixed percentage of trust assets revalued annually• Payment amounts may change annually• Potential to keep pace with inflation
Who Can Benefit from a CRUT?
• Individuals 50 years of age and older for lifetime payments. or 49 years of age and younger for term of years.
• Committed individuals wishing to give, but would like security of income for retirement.
• Individuals wishing to be philanthropic and interested in diversifying their income stream with potential for increasing with inflation.
• Individuals with highly appreciated but low dividend‐paying securities or other property.
Boston College Shaw Society
All donors who make a gift through an estate or
planned gift automatically join the
Shaw Society.
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Thank you
Boston College Office of Gift Planning140 Commonwealth AvenueChestnut Hill, MA 024671‐877‐304‐SHAW | [email protected]/giftplanning
Joel Carlton‐Gysan, Associate DirectorP: 617‐552‐3424E: joel.carlton‐[email protected]
Denise Heffron, Associate DirectorP: 617‐552‐8535E: [email protected]
To receive your free Estate Planning Guide please visit: bc.edu/estateplanning