Building Treasures: Charitable Annuities and Trusts

Planned Giving in Lent – Part 5 

Matthew 6:21 –“For where your treasure is, there your heart will be also.”

Our final destination – charitable annuities and charitable trusts.

These products are sometimes called life income gifts since they grow out of donor’s lifetime income stream and they are managed for you.  They are somewhat more complicated because of this. You need a third party to draw up a contracts and to manage the life income gift. The new Diocese of Va. Planned Giving site has that capacity –  as well as providing a deeper treatment of life income gifts than what I can do here.

Life income products are typically designed for older parishioners. There may be minimum age requirements and minimum investable amounts.  For example, with the charitable annuity at the Episcopal Church Foundation, there is a minimum age of 55 and a minimum contribution of $5,000.

The opportunity to make life income gifts grew out of the 1969 tax reform act, which, for the first time, made a distinction between an asset and its earnings, enabling a person to keep the asset and give away the earnings, or to keep the earnings and give away the asset.

The several forms of life income gifts but they essentially work the same way:

1. Assets are transferred to an entity such as the Episcopal Church Foundation (ECF).
2. The ECF invests the assets, (or sells them) and produces income, which is paid to the donor and/or spouse, or another person if desired. In many cases, the income is generated monthly.
3. At death or at the end of the term the remaining funds will go to the church.

The advantage is that you don’t have to sell your income-producing assets to take advantage of life income gifts.  If you are younger and feel pressure to save for retirement or you are older at retirement on a fixed income, these products may be of interest. If your assets are “tied up” in an investment, such as a beach home or business, this may work for you.  Don’t sell the asset, but transfer it to an entity like the ECF and have them set it up in an annuity or trust.

A Charitable Gift Annuity is a contract between a donor and the ECF through which the Foundation promises to pay a fixed annuity income to a donor for the rest of his or her (or their) life.  These amounts are guaranteed. There are both for singles and couples. Generally you give cash and securities to establish the annuity.

There are several benefits for the donor:

1. Receiving a tax deduction on the year you make the gift based on your age.
2. Donating the asset but not giving up the assets earning power. The asset is invested and you will received annuity payments over each year, in many cases a monthly or quarterly check. There is also a variant – a deferred gift annuity where you establish the gift annuity today, receive a charitable income tax deduction this year for the gift, but defer the payments until a designated date sometime in the future.
3. A portion of each annuity payment is tax free— also determined by Treasury tables.
4. At death, the annuity is completely excludable from the donor’s taxable estate since it goes back to the ECF and then St. George’s.

A Charitable Remainder Trust is similar to the Charitable Gift Annuity; the difference is that your return is not for the rest of your life, but over a specific period, generally a maximum of 20 years.  Also your return may be either a fixed percent based on market value on the date trust was created (annuity trust) or a fixed percent based on the value on specific date of the year (unitrust). The latter payout will vary since it is based on the investment performance of the assets.

Note that unlike the charitable annuity there is no guaranteed return.  Another difference is a wider variety of assets that can be transferred, including real estate. You transfer your assets into a trustee who is responsible for selling appreciated assets, and investing and reinvesting those assets, together with any income therefrom, and for making distributions to you and/or your designated beneficiary. When the trust terminates the remainder would go to St. George’s.

I am ending these articles with a question for you – Would a life income gift be a planned giving vehicle you would be willing to consider? Why or why not? What attracts you and also what causes you concern?  Let me know ben.hicks@stgeorgesepiscopal.net.  I will pick the best answer or if there are too many a random one that is complete. The winner gets at $5 Hyperion card to “have one on me.”