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Charitable Gift Annuities:
Help Yourself, Help Others
by Jim Pedigo, CLU, ChFC, CASL
In this time of state budget shortages and service cutbacks, arts and charitable organizations need financial help more than ever. Thanks to the same financial constraints, individuals need to be wise with their money, too. And yet many still want to be generous toward the charities of their choice. So how does an individual meet both needs—yours and the charities’? Here’s a look at one sound strategy.
If you want to increase your retirement income, receive a tax deduction while helping others, or both, you might consider an irrevocable Charitable Gift Annuity. But if you want to maintain more control over your money than a Charitable Gift Annuity allows, then the Donor Advised Annuity may be for you. Let’s look at an example.
Interested in more income and some tax deductions to help others but unsure what her future needs may require, Mrs. S., 78, decides to deposit $100,000 into a Donor Advised Annuity. She chooses to receive lifetime monthly-income payments, with a guaranteed minimum to her beneficiary: the amount of her original deposit, minus the total payments already made to Mrs. S.
• Lifetime Income Payment: $848.66 a month (equals $10,183.92 a year)
• Guaranteed installment refund period: 9 years, 10 months
If she lives beyond the guaranteed installment refund period—in this case, 9 years and 10 months—she will continue to receive payments of $848.66 for the rest of her life. But if she dies within that period, her beneficiary would receive the balance of her original $100,000 deposit, in installments. In this example, if she dies halfway through the 9 years and 10 months, her beneficiary would receive payments totaling $50,000.
In addition, Mrs. S. has the option to provide ongoing Lifetime Gifts to her favorite charity or charities.
She chooses how much of her increased retirement income she wants to give her favorite charity. The insurance company then sends her gift automatically to the charity year after year from her Donor Advised Annuity. (She can change the portion of her charitable-benefit payments by notifying the insurance company in writing.) Mrs. S. is eligible for an income-tax deduction based on the annual amount of these charitable gifts.
For example, Mrs. S. elects to give 15% of her income from her Donor Advised Annuity to a charity:
• $848.66/month x 15% = $127.30 monthly gift to the charity.
• $127.30/month gift x 12 months = $1,527.60 annual gift to the charity.
The annual gift amount—$1,527.60 in this example—is tax- deductible. And she still receives $8,656.32 a year from her original $100,000 deposit.
Plus, she maintains flexibility and control of her retirement income from the annuity. Let’s assume circumstances change along the way that either allow her to increase the amount of her charitable gift or require her to decrease it. Either way, she can immediately make the increase or decrease by notifying the insurance company in writing.
What if she needs access to her money? Although the Donor Advised Annuity’s primary purpose is to provide guaranteed lifetime income payments, unforeseen events may require her to access immediate cash. That’s where the “commutation” feature comes in. It provides her with a level of flexibility and control over access to her deposit based on the terms of her immediate annuity contract.
The commutation feature allows her to “commute” or cash in all or part of her contract. It converts the value of her future income payments into a lump sum paid to her immediately.
The Donor Advised Annuity can be an attractive and flexible way to generate monthly income for life while assuring that the charities of your choice continue to benefit from your (tax-deductible) generosity. S
Jim Pedigo, president of Financial Rate Watcher$, is a Chartered Life Underwriter, a Chartered Financial Consultant, and a Chartered Advisor for Senior Living, with 35 years’ experience in retirement and estate planning.
Financial Rate Watcher$, Inc., Longwood; 407.333.3330;
DonorAdvisedAnnuity.com
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