Helping Your Clients Get Paid to Give

A “life income gift” may be of interest to clients who would like to support their favorite causes while also securing their income. These gift plans are especially appealing for clients who have experienced declining interest or dividend yields in recent years. Depending upon the type of life income gift, such a plan can provide fixed or variable payments to the donor or others for one or more lifetimes, a term of years, or a combination of the two. Payments to the beneficiary can be taxed at favorable rates, or even partially tax-free. There is no capital gains tax on the transfer of appreciated property to the life income gift, and the donor receives a current income tax charitable deduction for the value of the charitable contribution.

Here are two examples of life income gifts that might be interesting to your clients:

Charitable Gift Annuity (CGA)

In exchange for an irrevocable gift, CFMC issues a contract promising to pay a fixed annuity for the lifetime(s) of one or two individuals. The amount of the annuity depends upon the age(s) of the annuitant(s) at the time of the gift (minimum age is 65) and does not change.

For example, Edgar, who is age 78, was looking for a higher return than what his bank offers for a $25,000 certificate of deposit. After consulting with you, Edgar chose to contribute the money to CFMC in exchange for a charitable gift annuity. Based upon his age, the annuity will pay him 6.5% ($1,625/year) for life. What is more, most of the gift annuity income will be tax-free for the first ten years. Edgar will also receive a current income tax deduction of more than $13,500 for his contribution and the remainder of the annuity will benefit his favorite cause at his death.

To calculate different annuity illustrations for your clients, please contact us or visit our gift calculator.

Charitable Remainder Unitrust (CRUT)

A charitable remainder unitrust pays a fixed percentage of the value of the trust fund, as revalued each year, to its income beneficiaries each year and then, when the income beneficiaries’ interests have ended, distributes its remainder to the cause(s) designated by the donor. Charitable remainder unitrusts work particularly well with gifts of securities, real estate, or other property because the charitable remainder unitrust is tax-exempt, does not pay capital gains tax when it sells the contributed property, and can distribute tax-favorable long term capital gain income to its beneficiaries.

For example, Alice, who is age 76, owns shares of stock now worth $500,000 which cost her $100,000 several years ago. Although the stock has increased in value, its dividend yield is a modest 1.5%, about $7,500 per year. Alice wants to diversify her investments and produce higher income, but she is concerned about the capital gains tax she will pay if she sells the stock. Alice works with you to create a charitable remainder unitrust with an irrevocable gift of stock to CFMC.

CFMC pays Alice an amount equal to 5% of the value of the trust fund each year. In the first year Alice’s trust income will be $25,000 and a significant portion of Alice’s annual income could be taxed at favorable rates compared to ordinary income. In addition, Alice will receive an income tax charitable deduction of more than $310,000.

To discuss life income gift options for your clients, please contact us or visit advisor solutions.