Options for Charitable Giving
Part Two
Christian Financial Network -- In our last installment, we discussed using the Charitable Gift Annuity (click here to read last week's article) to accumulate and defer payments until some point in the future. This type of charitable gift annuity is known as a ‘Deferred Gift Annuity’.
This week we will focus on another form of gift annuity the ‘Immediate Gift Annuity’.
The immediate gift annuity can be an excellent choice for the donor who needs to receive immediate annuity payments and is also highly motivated to bless a ministry or charity with a tax deductible gift.
If you are considering a Charitable Gift Annuity as a way to suport CBN, you can get more information by contacting
CBN Planned Giving at
or send an email to
plannedgiving
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For this article we assume the assets being used are appreciated securities, although a gift annuity can be funded in many ways including gifts of appreciated securities, land or other property and of course, cash.
The Smith's Desire to Give
Using the Smiths, our high net worth couple from the previous article, let’s assume they are committed to give $500,000 to their favorite ministry. They decide to donate $500,000 in appreciated stock currently paying a 5% (annualized) quarterly dividend. Let’s also assume the Smiths will continue to use this quarterly payment to meet their daily living expenses. As before, the Smiths are concerned about donating the stock if it means they will not be able to pass the assets on to their heirs once donated to the ministry.
The Solution
The Smiths are wise to donate appreciated assets, in this case stock. By donating appreciated stock they immediately eliminate the capital gains taxes they would have paid had they sold the stock first and used the proceeds as the donation to the ministry. As a general rule, if you are considering donating the proceeds from the sale of appreciated assets to charity, you should donated the appreciated assets outright to avoid capital gains and increase your charitable tax deduction.
After talking to their favorite ministry’s planned giving department, the Smiths learned, based on their age, they qualify for a joint immediate charitable gift annuity that will pay 5.1% quarterly for life. They are surprised to learn that a portion of their quarterly payment from the ministry will be tax-free, unlike the dividend payment on the stock which is considered 100% taxable for income tax purposes.
The Smith’s concern over removing $500,000 from their estate and ultimately from their heirs is still weighing on them. They are please to learn that a Wealth Replacement Trust can be utilized to replace the assets given to the ministry and used to fund the gift annuity. The Smiths plan to use the income tax savings generated by taking the charitable deduction on their income taxes in the year of the gift, to fund the Wealth Replacement Trust.
Conclusion
In this example, it is interesting to see how the Smiths can support their favorite ministry, reduce their capital gains exposure, receive quarterly payments of 5.1% (annualized) and provide for their heirs. They feel that in a sense, God has provided a way for them to give to the Kingdom and at the same time has made a provision for their needs.
Many churches, ministries and charities have professional planned giving departments that can assist you with financial planning techniques and strategies similar designed to allow you to support their work and allow you to receive financial and tax benefits as well. If you would like more information on this plan or similar strategies please contact the Christian Financial Network by sending an email to RobWells.
The financial information presented here is hypothetical.
Your personal financial profile and changes in tax law should be considered before making any financial decision.
You are encouraged to talk with your legal and financial advisor prior to entering into any contracts. |
by Robert Wells
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