Whether You Are A Grinch or Ebenezer Scrooge…
Or Have A Heart Of Gold, This Strategy Is For You!
(Click if you’d like to view an educational video from our guest speaker on charitable giving and tax planning.)
Look, whether you are inclined to charitable giving or not, we can show you strategies that could…
- Increase your discretionary or “spendable” income.
- Reduce — or even eliminate –
- income taxes
- capital gains taxes
- estate taxes
- Provide a tax-free inheritance for your heirs.
- Leave a lasting family and social legacy.
Got your interest?
You may or may not have considered charitable giving as part of how you distribute your wealth. Whether you have or not, charitable giving can give your wealth and estate a serious boost. If you thought the only way charitable giving helped you out was by giving you a tax deduction, you have a surprise coming.
You may have heard of a dizzying number of ways to gift money to charity:
- Charitable Remainder Trust (CRT),
- Charitable Remainder Annuity Trust (CRAT)
- Charitable Remainder Unitrusts (CRUT),
- Charitable Lead Trust (CLT),
- Family Foundations,
- Charitable Gift Annuities;
- and many more…
Good news, though. Rather than go through the pros and cons of all the above, just concentrate on this financial vehicle: the Charitable Gift Annuity (CGA).
It is, by far, the simplest, least expensive, and most beneficial way to fund charitable goals. In fact, it’s so beneficial, Ebenezer Scrooge in the prime of his penny-pinching, wouldn’t have minded.
A Quick Overview of the Charitable Gift Annuity (CGA):
It is a contract between a donor and a qualified 501(c)(3) public charity.
- The donor makes an irrevocable gift to the charity.
- In exchange, the charity promises lifetime income — typically to the donor, or donor and spouse (joint and survivor.)
A CGA can provide lifetime income at a high rate that is guaranteed by the charity and an immediate tax deduction for the donor.
The Charitable Gift Annuity “Triple Threat”
CGAs provide a “triple threat” of benefits in the following ways:
1. Guaranteed Benefit Income Protection
It’s important to note that while charities that implement CGAs are required to keep a reserve in order to assure the guaranteed income — this is not enough. It’s imperative that you work only with a reputable charity that knows how to implement a CGA
2. Charitable Benefit
Not only is there a direct charitable benefit, often a CGA can be set up so that the charitable funds are directed by the your heirs.
This has a two-fold benefit. Not only does this help to teach the your heirs about charitable giving, but it also, quite possibly, insures that your values are continued.
3. Substantial Tax Benefits
There are three ways that setting up a CGA can be kind to your taxes.
First, when transitioning the ownership of a highly appreciated capital asset (marketable securities, real estate, business interests, etc.) to a charity in exchange for a CGA, you do not realize a lump sum capital gain.
Second, a substantial immediate income tax deduction is given, with any surplus deduction allowed to be carried over up to five additional years. The exact details will depend upon your tax situation.
Third, by moving an asset to a CGA, it removes the asset from the your taxable estate, which can greatly reduce potential estate taxes.
Grinch’s Strategy (aka “Wealth Replacement”)
This is a strategy even the Grinch could love.
Wealth replacement is a fancy term for buying life insurance with some or all of the income stream that would flow to you from the CGA. The theory is that you could give away a $500,000+ asset to a charity, get a current income tax deduction, and use the stream of income from the charity to purchase a $500,000+ life insurance policy. The life insurance policy would be purchased inside an Irrevocable Life Insurance Trust (ILIT). This way, the death benefit will pass income- and estate-tax-free to the heirs.
Charitable giving sounds simple—just give your property or money away, receive a deduction, and provide wealth replacement for the heirs via a death benefit, and everyone is happy.
The reality is that setting up a charitable giving program is similar to buying life insurance.
If you use the wrong advisor, the chances are significant you will be setting up a plan that is in your advisor’s best interest instead of doing what is best for you and the charity your are trying to benefit.
Why not give us a call today to find out more about how a CGA can benefit you?
Just give us a call at (269) 216-9978, or sign up for a free consultation and write in your questions, and we’ll get back to you with answers soon.