Legacy of Giving: What I’ve learned as a Development Officer! (Or maybe a better way to say it is, “What it was like to realize all I – and most people – don’t know!”)

By Chuck Rodgers, VP Development, WTRC Foundation

It’s a scientific, biological, psychiatric fact that giving makes us feel good! It does. Scientists believe that selfless/philanthropic behavior releases endorphins in the brain, producing the positive feeling known as the “helper's high.” Researchers say people are more likely to experience certain gains in well-being because giving to others is more memorable than spending money on themselves.

Now, that being said, even the most generous givers I know are usually frugal, money-savvy individuals who have just as much desire to give to their own family members. They also want to have some for themselves as they age. Which, you might not be surprised to hear, brings us back to this whole arena of Planned Giving! Everything about Planned Giving is geared to helping generous people do so in a way that benefits BOTH themselves or their family AND the charity or charities they choose, all while giving as little to the IRS as possible. Pretty great, huh?!

Probably one of the most profound, and yet simplest, things I’ve learned along the way is that Planned Giving can really only do two things:

Lower Taxes


Trade a Gift for Income

Oh sure, there are lots of pieces and persons, papers and professionals, but in the end they are all about finding the best planning vehicle to meet your desires! That’s it!

And since the people we hope to help through this amazing arsenal of planned giving tools are folks who are very dear to us, it’s paramount that we get this information to you as quickly as possible! Of course, there are dozens and dozens of estate planning instruments out there, like….CGA’s, CRAT’s, CRUT’s, Grantor CLT’s, Non-Grantor CLT’s, NICRUT’s, NIMCRUT’s, Flip-CRUT’s, ILIT’s, PIF’s, DAF’s…see what I mean? It’s overwhelming and can get very complicated in a hurry! That’s why I have to remind myself, when I’m swimming in all the complexity, that it’s still about helping our friends either Lower Taxes or Trade a Gift for Income, PERIOD!

Over the next weeks and months we’re going to take a look at some of the more common, though powerful, financial planning tools/instruments/vehicles that you can use to either lower your income tax or trade some particular “non-income producing” asset for income. How crazy is that?! The latter is the one I’d like to start with, the trading a gift for income, and is one of the easiest and most mutually beneficial tools out there for both you and the charity you choose. The particular estate planning instrument I’m referring to is the CGA: Charitable Gift Annuity.

So what, exactly, is a Charitable Gift Annuity/CGA? I’m glad I asked that question (because I did!). A CGA is most simply defined as:

An agreement in which an individual transfers assets to acharity in exchange for a lifetime income stream and a tax benefit.

A charitable gift annuity is a way you can make a gift to your favorite charity and receive fixed payments for life in return. The payments can begin immediately, or can be deferred to a future date which you choose. You may also establish a gift annuity for someone else; however, the total number of recipients, called annuitants, of these payments associated with any one gift cannot exceed two. The terms of the arrangement are set forth in a contract signed by you and the charity. The arrangement terminates on the death of the annuitant(s), at which point the charity uses the remaining funds on its mission.

Who establishes gift annuities?

Most gift annuity donors are retired, want to increase their cash flow, seek the security of fixed payments that will not vary, and would like to save taxes. A charitable gift annuity might be appealing in the following circumstances:

  • The interest rate on a CD or other fixed income investment is low and you would like to increase your cash flow.
  • You own appreciated stock or mutual fund shares, have considered selling some of the shares and reinvesting the proceeds to generate more income, but don't want to pay tax on the capital gain.
  • You would like fixed payments which are unaffected by interest rates and stock prices and which you cannot outlive.
  • You want to assure continuation of payments to a loved one without the delay of probate proceedings and in a tax-efficient manner.

How is the amount of the annuity determined?

  • The payments under a gift annuity contract vary by the age of the annuitant—generally speaking, the older the annuitant, the higher the rate. Most charities offer rates established by the American Council on Gift Annuities (ACGA – That’s what we do at West Texas Rehab). The rates established by the ACGA are designed to balance an attractive payment stream for the annuitant with a good gift for the charity.
  • Charitable Gift Annuity rates are lower than those offered by insurance companies. If you want to maximize the amount of income you will receive over your lifetime, you might be better off purchasing a commercial annuity. But, if you would like to make a charitable gift, not pay hidden service fees and high premiums, receive an income tax deduction while also receiving fixed payments for life, a gift annuity might be a great fit for you!
  • Feel free to contact us to learn the maximum charitable gift annuity rates suggested by the ACGA.

What tax benefits are associated with gift annuities?

  • If you itemize your deductions, you can claim a federal income tax charitable deduction for a portion of the amount transferred to the charity in exchange for a gift annuity. The deduction is equal to the amount of the contribution less the present value of the payments that will be made to the annuitant(s). The present value of the payments is determined using life expectancy tables and assumed earnings prescribed by the IRS (We, or the charity you choose, can take you through this calculation).
  • Charities like West Texas Rehab that offer gift annuities routinely provide illustrations of the benefits of a gift annuity.  Click here for links to web sites of organizations that are members of the American Council on Gift Annuities and offer charitable gift annuities.

How will my payments be taxed?

  1. If you fund a gift annuity with cash, part of the payments will initially be taxed as ordinary income and part will initially be considered tax-free. If you fund the gift annuity with appreciated securities or real estate owned more than one year, part of the payments will be taxed as ordinary income, part as capital gain, and part may be tax-free. In most instances, the payments will eventually be taxed as ordinary income.
  2. West Texas Rehab, or the charity that issues the annuity, will send a Form 1099-R to the annuitant each year. This form will specify how the payments should be reported for income tax purposes. For details regarding the taxation of gift annuity payments, we encourage you to consult with any of us in the West Texas Rehab Foundation, and always consult with your financial advisors.

How do I get started?

  • Check out the website of your favorite charity to see if they offer charitable gift annuities. If your charity does not offer gift annuities, you might still be able to establish a gift annuity through a community foundation that will benefit a specific cause or organization that you would like to support.
  • Contact the development director, planned giving office, or fundraising office of the charity you wish to support.
  • Ask the charity for a financial illustration showing the amount of payments, how they would be taxed, and the charitable deduction generated by the gift.

And, finally, as I said before…. ALWAYS DICUSS THE FINANCIAL ILLUSTRATION(s) WITH YOUR TAX AND FINANCIAL ADVISORS. They can help you make an informed decision, taking into consideration all relevant factors.

Those of us in the West Texas Rehab Foundation are more than ready to sit down with you and help you walk through what your desires, hopes and dreams may be for you, your family, and your Legacy of Giving!

Continue Reading "What I've Learned as a Development Officer" (Part 2)

NOTE: The security of your CGA is only as secure as the financial strength of the organization granting it. There is no governmental guarantee. Thus, you need to know that the organization you are doing business with has the ability to honor your payments no matter what economic climate exists during the life of your CGA.