With the holiday season upon us now is one of the best times to have a conversation with your clients regarding charitable giving. All around us we are flooded with generosity. The year is coming to a close, and it is important to discuss charitable giving options before it is too late. Charitable giving, by way of Charitable Gift Annuities, is a great way for clients to give back without inhibiting their retirement income.
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A Charitable Gift Annuity (CGA) is a contract between a donor and charity where the donor transfers cash or property to the charity for a partial tax deduction and a lifetime stream of annual income from the charity. It is an easy way to make a gift to charity while retaining a lifetime income stream for the donor. It offers your client a way to increase their income, get a substantial tax deduction, and the option to restore the value of the charitable gift for their heirs with life insurance.
Advantages to the Donor:
- Converts appreciated capital asset into lifetime guaranteed income
- Income tax deduction for the present value of the remainder interest to charity
- The asset is removed from the estate for estate tax purposes
- The Capital gain on the donated asset is spread over donor's life expectancy
- The Donor can use part of the annuity payment to purchase estate tax-free life insurance to "restore" asset for heirs
- Part of each annuity payment is taxed at lower capital gain rates
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Advantages to the Charity:
- Charity receives a significant donation
- The purchase of a SPIA commercial annuity by charity guarantees private annuity payments to the donor and transfers mortality risk to the carrier
- Donated funds not needed for a SPIA purchase may be added to the charity's endowment portfolio or used for current needs
- The charity's tax-exempt status allows it to sell capital asset with no tax consequences
- Simple unsecured gift annuity agreement and minimal paperwork
In the full article originally published in Broker World Magazine, BSMG's Russel E. Towers, Vice President of Business and Estate Planning, takes a closer look at how this concept works.