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What are the best assets to use in funding a charitable gift annuity (CGA)?
CGAs are typically funded with cash or securities. If you fund your CGA with appreciated securities, you can avoid the up-front capital gains tax on the appreciation in value since you bought the securities and your gift is based upon the stock's fair-market value. As you receive the annuity payments, a portion of each one is treated as capital gain income and taxed at a maximum rate of 15 percent throughout your life expectancy. In addition, a portion of each payment is tax-free. Again, for gifts of cash, the tax-free portion is larger which is a nice benefit.
Can anyone besides me receive payments from my CGA?
Yes. You can arrange to have your gift annuity provide for another person, such as a spouse or even an unrelated individual. If this person survives you, the payments will continue for his or her lifetime.
Can you provide a typical example of a CGA donor?
Yes. Suppose David, a 65-year-old widower, transfers $40,000 in long-term appreciated stock with a cost basis of $10,000 to a charitable organization in exchange for a gift annuity. Using the suggested rates, David's annuity will pay an annual rate of 6 percent, or $2,400, per year. His charitable deduction for the year he enters the charitable gift annuity agreement will be approximately $10,969 (based upon a federal mid-term rate of 3.6 percent and quarterly payments). If David is in the 33 percent income tax bracket, this charitable deduction will result in income tax savings of roughly $3,620 (33 percent of $10,969). The payments of $2,400 will be taxed as follows: $941 (ordinary income), $1,094 (capital gain), $365 (tax-free). Considering both the income tax deduction and tax-free return, this annuity is similar to receiving a 7.9 percent taxable return.
What are the payout rates you use?
Here are the rates as established by the American Council on Gift Annuities.
American Council on Gift Annuities: Suggested Maximum Rates
One Life Two Lives
| Age |
Rate |
| 50 |
5.3% |
|
55
|
5.5% |
| 60 |
5.7% |
| 65 |
6.0% |
| 70 |
6.5% |
| 75 |
7.1% |
| 80 |
8.0% |
| 85 |
9.5% |
| 90+ |
11.3% |
| Younger Age |
Older Rate Age |
Rate |
| 45 |
50 |
4.5% |
| 50 |
55 |
4.7% |
| 60 |
65 |
5.5% |
| 65 |
70 |
5.7% |
| 70 |
75 |
6.1% |
| 75 |
80 |
6.6% |
| 80 |
85 |
7.3% |
| 85 |
90 |
8.4% |
| 90 |
95+ |
10.1% |
The rates set by the American Council on Gift Annuities will be lowered on July 1, 2008 for new CGA agreements. Agreements established before this date will not be affected.
Please contact us immediately if you want to take advantage of the current, higher rates.
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