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You’re considering a lifetime gift in partnership with your favorite charity > Your planning objectives are stable future income and a high current income tax deduction > Your preference is fixed income payments
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There is a version of the charitable gift annuity especially designed for younger donors. Called the deferred gift annuity, it makes fixed annual payments to you and/or another beneficiary for life, with payments commencing at a future date. Because of the deferral of income charities can offer a higher income rate for these annuities than for annuities whose income starts immediately. The deferral also provides a larger charitable income tax deduction than you could get from any other life-income gift plan.
These two features make the deferred
gift annuity very attractive to donors in high-earnings
years who are concerned about securing both current
tax deductions and additional sources of retirement
income. Many donors establish a series of deferred
annuities over several years, using funds they
had already set aside for retirement savings. They
set the commencement date for payments from these
annuities to coincide with their or their significant other's
retirement.
In all other respects, the deferred gift annuity offers the same benefits of simplicity, security and attractive income taxation that the regular gift annuity provides donors:
- Your
deferred annuity is a contract between your
favorite charity and you, and your annuity payments
are an obligation backed by their corporate
assets.
- You secure
a charitable income tax deduction based on the
market value of the assets you contributed,
minus the present value of the life-income interest
retained.
- No up
front capital gains tax is payable if you fund
your deferred gift annuity with appreciated
securities; only a portion of your gain is reportable
over your annuity payments.
- Part
of each annuity payment to you comes tax-free
as the return of principal.
- Many
charities ask a minimum gift of only $5,000
to $10,000 to create a deferred gift annuity.
- The balance
remaining in your deferred annuity after the
death of the beneficiaries will be applied by
the charity to the project that you selected
or established when you created the annuity.
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Example
You’ve just turned 50, and your two kids are now teenagers. You provide the bulk of your family’s income and retirement savings. You and your husband are in the 35 percent tax bracket, and you have reached the maximum contribution limit for your group pension plan.
You are looking for ways to offset your high taxable income, and for additional sources of retirement income. You also want to make a gift of $50,000 to your favorite charity, but you’re finding it hard to locate the assets to make such a gift outright.
You decide that starting this year, you will create five deferred gift annuities of $10,000 each. Payments from all five annuities will commence when your husband turns 65, thirteen years from now, and will continue for the balance of your lives.
Because the deferral periods will get shorter each year, the five annuities will have different income rates and charitable deductions. Here are the income and tax benefits of the first deferred gift annuity:
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Donors
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Wife 50, Husband 52
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Click here
to calculate
the benefits
a deferred
gift annuity
would give you.
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Amount contributed
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$10,000 cash
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Annuity rate
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13%
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Annual payment
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$1,300
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Payments commence
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2015
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Charitable deduction
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$2,318
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Tips on Creating a Deferred Gift Annuity:
First, read the gift annuity disclosure statement provided by your favorite charity. You should then consult with an attorney expert in the area of charitable gifts and estate planning. The charity may provide a draft of the deferred gift annuity agreement for review by you and your attorney, and will help you transfer cash or securities when you make your gift.
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