October 2009 Issue
Strategic philanthropy is a vital component of estate planning. It’s important to find trustworthy resources and advice, especially in an uncertain economic climate.
Charitable contributions from individuals are a necessary source of support for nonprofit institutions, both for present programs and to secure the future. That’s where planned giving comes in. Making philanthropy a part of estate and tax planning helps individuals make a difference to a cause they believe in, and enables worthy organizations to move forward with their mission.
A challenging economic climate calls for both creativity and caution. How should people adjust their thinking relative to investment strategies in these rapidly changing times?
With CD rates at historic lows and the unpredictability of dividend returns, charitable gift annuities are attractive to many donors, says Bill G. Economus, J.D., vice president, planned giving, Nationwide Children’s Hospital Foundation, Columbus.
“A charitable gift annuity is a simple contract that provides a donor fixed payments for life with the remainder benefiting charity,” he explains. “The payment is determined by the donor’s age. In almost all cases [the payment] is much higher than current CD rates. The donor is also entitled to a charitable income tax deduction the year they establish the gift annuity.”
For example, if a 75-year-old donor establishes a $25,000 gift annuity, he or she will receive an annuity rate of 6.3 percent. The donor will qualify for a federal income tax deduction of approximately $11,220 and receive an annual annuity payment of $1,575. In addition, $1,111.95 of each year’s payments will be tax-free for 12.4 years. The charitable gift annuity creates a guaranteed stream of income for the life of the donor at favorable rates, provides an income tax deduction and provides much-needed support to charity.
“It is important to consult with your financial, legal or tax advisor before considering any financial or gift planning strategy,” Economus advises. “Actual benefits may vary depending on the timing of the gift.”