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Life Income Arrangements

Life income gifts such as charitable gift annuities and charitable remainder trusts enable you to support Lawrence Hospital Center while retaining a healthy income stream for life. You also would receive significant income tax savings and possible capital gains tax savings if appreciated assets are donated. These arrangements also enable you to provide income to other individuals.

Charitable Gift Annuities

A charitable gift annuity pays you an attractive fixed rate of return for the rest of your life in exchange for a gift of cash, stock or mutual funds. Your annuity payments can begin immediately or be deferred until a later date. Either way, you will get your tax deduction now. You will also enjoy favorable taxation of annuity payments. Two-life annuities are also available.

Immediate Payment Gift Annuity Rates:

Your annuity rate will depend on your age when you make your gift. Once you reach your half birthday, you are considered a year older. Sample single-life charitable gift annuity rates follow for ages 65 and older.

Age 65 70 75 80 85 90
Rate 5.3% 5.7% 6.1% 7.1% 8.1% 9.5%

Example: Donate $10,000 at age 80, and you will receive 7.1% ($710/year) for the rest of your life.

Rates for two-life annuities are somewhat lower, but still quite attractive.

Deferred Gift Annuity Rates

Your annuity rate will depend on your current age and the length of time until payments begin. The longer you defer your payments, the higher your annuity rate will be. The following chart demonstrates approximate deferred gift annuity rates for individuals ages 55, 60 and 65 making gifts with payments deferred five or ten years.

Age now Five year deferral Ten year deferral
55 6.1% 8.0%
60 6.5% 8.6%
65 6.9% 9.5%


Tax Benefits

Whether you begin to receive your annuity payments immediately or defer them until a later date, you are entitled to an income tax deduction the year you make your gift for part of the gift value.

You will also enjoy favorable taxation of your annuity payments. This will enhance their spending power. If you donate cash, part of your annuity will be completely tax-free for the rest of your actuarial life-expectancy. If you donate appreciated stock or mutual funds, your annuity will be based on the full value, no matter how low your cost basis. But, part of the portion of your annuity that would be “tax-free� for a cash gift would instead be taxable as capital gain. This favorable tax treatment will continue for the rest of your actuarial life-expectancy, after which annuity payments will be taxable as ordinary income.

Example

Mrs. Wagner established a gift annuity at age 80 with a cash gift of $25,000. She receives an 7.1% annuity ($1,775/year for the rest of her life). More than 70% of her annuity payments ($1,309.95 of the $1,775 she receives each year) will be completely tax-free for the next 9.4 years. Plus, she received an immediate income tax deduction of $11,688 for her gift.


Two-Life Annuities and Providing for Others
: If you are married, annuity payments can be made jointly to you and your spouse, with the full amount then payable to the survivor. You can also establish a gift annuity to provide for you first and then for another individual (e.g., a sibling or friend) if he or she survives you. If you don't need the income, you can simply establish your gift to provide for one or two other individuals. Gifts that include beneficiaries other than you and your spouse may have gift or estate tax implications.

Charitable Remainder Trusts

A charitable remainder trust is a tax-exempt trust that makes payments to you and/or others for your lifetime(s) or a term of years. Then, the principal is distributed to charity. You can establish your trust exclusively for Lawrence Hospital Center, or specify that principal ultimately be divided between Lawrence and other charities. You will enjoy many tax benefits from a charitable remainder trust. Plus, since a charitable remainder trust is individually structured, your trust can be tailored to your assets and personal financial goals.

Tax Benefits

Since a charitable remainder trust is tax-exempt, appreciated assets donated to the trust can be sold without paying the immediate capital gains tax that would ordinarily be payable on a sale. The full sales proceeds (minus any applicable commission) can then be reinvested for your benefit. You also get an income tax deduction for your gift. For gifts of most assets, you get your tax deduction immediately upon making your gift for a portion of the full fair market value.

Types of Charitable Remainder Trust

There are two basic types of charitable remainder trust. You choose the percentage payout for either type when your trust is created.

  • Charitable remainder annuity trust: This offers the security of a fixed payout. (Establish a 6% annuity trust with $100,000 and get $6,000 every year).

     
  • Charitable remainder unitrust: Under a "standard" unitrust, your payout would be your chosen percentage of the value of the trust as revalued on the first day of each year. If trust value rises, your payments will also increase. This can provide a valuable hedge against inflation in your payments over time. However, in any year that trust value falls, your payout would also fall.

Special types of charitable remainder unitrusts can also be structured to:

  • Accommodate gifts of assets such as real estate, closely held stock, art, or other collectibles that are not readily marketable.
  • Provide you with future retirement income: You would receive little or no income now, allowing your trust to grow tax-free to the maximum extent possible. Assuming that your trust grows as planned, your future payments should be based on a larger trust value.

Assets That Can Be Donated and Planning Opportunities

Publicly traded stock or mutual funds: This is an ideal way to diversify a portfolio too heavily concentrated in one security (e.g., your employer stock) without paying the immediate capital gains tax that would ordinarily be payable on a sale.

Closely held stock: If you are considering the sale of a business, you can donate some or all of your closely held stock to a charitable remainder unitrust and avoid immediate capital gains tax on the sale. NOTE: S corp. stock cannot be contributed, and the trust is prohibited from selling the stock to certain family members.

Real Estate: Many types of unencumbered properties can be donated to a charitable remainder unitrust, including a vacation home, residential or commercial investment property or vacant lot. Investment properties can make particularly desirable gifts, since capital gain due to depreciation taken will most likely be taxable at the 25% rate, rather than the 15% maximum capital gains tax rate that now applies to most other assets through the end of 2010. You may also wish to donate a personal residence, or a portion of the value, if your gain exceeds your capital gains tax exemption.

Example

Mr. Beckman donates a rental house worth $500,000 for which he originally paid only $125,000 to a charitable remainder unitrust. Since he has already taken $83,750 in depreciation deductions, his cost basis for tax purposes is only $41,250. He avoids paying the $77,187 in capital gains tax that would have been due on a sale. (Gain due to depreciation is taxable at 25%). The full sales proceeds are invested for his benefit. He chose 6% as his payout, and will receive approximately $30,000/year. And, at his age of 70, he gets an immediate income tax deduction of $234,130.


If you are not able to donate the entire value of the property, consider a gift of a percentage "undivided" interest. Sales proceeds would then be divided between you and your trust.

Collectibles (Art, antiques, jewels, oriental rugs, stamps, coins): A gift of a valuable collectible to a charitable remainder unitrust enables you to convert an asset now paying no income at all into an income stream without paying the immediate capital gains tax that would ordinarily be payable on a sale. This tax saving is significant, since the tax rate on collectibles is still 28% -- almost twice the 15% maximum rate that now applies to most other assets. This is an ideal way to take advantage of today's hot market in many collectibles. You may wish to donate an asset you no longer use or enjoy owning, or if you are planning to move, an asset that will not fit into a new residence. You will be entitled to an income tax deduction for part of the cost basis when your donated asset is sold by the trust.