For many people, charitable gifting is an important part of who they are and of the legacy they hope to leave behind when they are gone. If you are among them, incorporating your philanthropic goals into your estate plan is important. When doing so, you should maximize any secondary benefits that might be available to you. One charitable gifting tool you may wish to consider using is a charitable gift annuity. The Indianapolis estate planning attorneys at Frank & Kraft explain what a charitable gift annuity is and how one might fit into your estate plan.
The Complex Nature of Charitable Gifting
For those who are inclined to give to individuals, charities, and organizations they support, the desire to give is not complicated. Simply writing a check or clicking a “donate now” button on a website, however, may not be the best way to effectuate your gifts if you are making a sizeable and/or recurring donation. To make the most out of your charitable gifts you need to consider factors such as the tax implications of the gift, the amount of control you will have over how the gift is used, and whether you or another non-charitable beneficiary will receive any residual monetary benefit from the gift. Finally, if you want your philanthropy to survive your death, you need to make sure that your estate plan is structured accordingly.
Charitable Gift Annuity Basics
Like other types of annuities, a charitable gift annuity begins as a contract between the donor (you) and a qualified charitable organization. Under the terms of that contract, the donor gifts cash or other assets to the charity (the “donee”) in return for which the charity agrees to pay the annuitant (the donor) an income for life. The maximum number of annuitants is two and payments may be made to them at the same time or successively. For example, if you are married and you and your spouse establish a charitable gift annuity, you could set off the payments to be made to you until your death at which time the payments would transfer to your spouse. Upon the death of the donor(s), the charity keeps the remaining cash or assets from the original gift.
One particularly attractive aspect of a charitable gift annuity to the charitable beneficiary is that unlike with many charitable trusts, the charity does not have to wait to make use of the assets gifted. Instead, part of the gift may be used immediately by the charity while the remainder of the gift is invested in an account to provide the income stream for the annuitant(s).
How Much Income Will I Receive from a Charitable Gift Annuity?
Because one of the benefits to establishing a charitable gift annuity is the prospect of a lifetime income stream, it only makes sense to want to know how much income you will receive. The answer, however, is based on several actuarial factors. In the United States use payout rates defined by the American Council on Gift Annuities when determining how much income an annuitant will receive. Among the important factors considered when setting a payout amount are:
- The value of the initial gift
- The age of the donor(s)
- The number of annuitants
- Whether the payout to multiple annuitants is concurrent or successive
- Interest rates
- The target payout percentage at the end of the contract (how much of the gift the charity will retain)
Is a Gift Made to a Charitable Gift Annuity Tax Deductible?
While your desire to give to charity may be altruistic, there is no reason not to take advantage of applicable tax deductions for your gift. Gifts made when you establish a charitable gift annuity do qualify for a charitable gift tax deduction equal to the amount of the contribution less the present value of the payments that will be made to the annuitant(s) during life. The Internal Revenue Service (IRS) provides a table that considers life expectancy, assumed earnings, the value of the gift, and the annuity rate that can be used when determining the present value.
Contact Indianapolis Estate Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about incorporating a charitable gift annuity into your comprehensive estate plan, contact the experienced Indianapolis estate planning attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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