Seven Lesser Known Ways To Use A Gift Annuity |
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| By: Robert D. Cavanaugh, CLU | ||||
A gift annuity is a popular planned giving tool. They have been around for over 100 years. They are easy to understand, simple to set up and don't have the higher administrative costs associated with other charitable giving techniques. Most people think the income from a gift annuity is for the life of the donor or for the joint lives of the donor and spouse. There are, however, at least seven other ways a gift annuity can be used. Let's take a look at the two traditional applications and then summarize the other seven options. Perhaps these will plant a seed for their use in your situation that will also benefit your church. Your Life Only This most common use of a gift annuity pays the donor an income on a contribution of cash or some other appreciated asset to the church or other charity. Upon the donor's death, the original contribution belongs to the church or charity. For as Long as You and Your Spouse Live You can also set a gift annuity up to pay out for as long as either you or your spouse lives. This is the joint and survivor gift annuity option. The seven lesser-known ways to use this planned giving tool are: 1. For as Long as You and Another Person Live The second person eligible to receive the annuity can be someone other than your spouse. A person could, for example, establish a gift annuity for oneself and a sibling. 2. For the Lifetime of Someone Other Than the Donor. The gift annuity is created for someone specified by the donor. This type of gift annuity is frequently used for children with special needs, for example. 3. You, Your Spouse, and/or Another Person, but Deferring Payment for a Number of Years. These annuities are set up like others with the exception that they do not begin to pay out income for a stated period of time or the occurrence of a predetermined event. An example of a deferred payment annuity might be a gift annuity you set up at age 55 for yourself. You stipulate that it will not pay income to you until you reach age 65 or 70. The funds would supplement your retirement income. This type of plan has the dual advantage of higher income paid and a larger charitable gift deduction. 4. For a Child or Grandchild's Education A gift annuity can be created for a child or grandchild at birth or a very young age. The fund would begin paying out when the child reaches a specified age, and continue over the next four to eight years. There is, however, no obligation that the child or grandchild use the money for education. You could be funding a Corvette! 5. The "Re-insured" Gift Annuity In my opinion, this technique should be employed more often because it provides cash for the church immediately. The church, instead of just holding the original contribution, invests it in a "commercial immediate annuity" from an insurance company. When the insurance company sends payments to the church, the church sends a check to the donor. The cost of the immediate annuity will vary and is dependent on several factors such as the age of the donor and the prevailing interest rate in the economy. Nevertheless, the cost of the immediate annuity is less than the amount received from the donor. This difference is available to the church immediately. 6. Exchanging a Charitable Remainder Unitrust for a Gift Annuity If you are the income beneficiary of a charitable remainder unitrust (CRUT), you can exchange this interest for a gift annuity. This move can satisfy many objectives. For the donor, there will be an additional income tax deduction for a charitable contribution. This action frees funds for immediate use by the charity, perhaps for a building project. 7. Creating a Gift Annuity at Death With an IRA Part or all of an IRA account can be used to create a gift annuity upon your death. This would provide a reliable and consistent source of income for a surviving spouse for as long as he or she lives. The funds would go to the church upon the spouse's death. In addition, your estate would be eligible for a deduction for a charitable contribution for that part of the gift annuity. The IRA, however, would still be subject to ordinary income taxes. Summary Although this summary presents information that will be new to most people, it barely scratches the surface of the numerous benefits of gift annuities. Before creating a gift annuity or any other type of planned giving fund, consult with a tax professional. Be sure you understand all of the positive and negative ramifications of the various options available. |
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| Article Source: http://yourfinance.co.za | ||||
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