Kelly Bullis: Charitable gift annuity: Is it right for me?

Are you looking for a way to provide more assistance to one or more of your favorite charities? Are you also looking for a supplement to your retirement income and have some highly appreciated stock that would trigger a capital gain if you sold it and then used the net proceeds to help fund your retirement?

A charitable gift annuity is a contract between a donor and the charity where the charity gives the donor a life-time annuity payment in exchange for the appreciated stock going directly to the charity. Who wins? Everybody except the IRS! The donor avoids paying capital gains tax, gets a sizable charity deduction on their tax return and receives an annuity payment for life to help supplement their retirement.

Let’s look at an example: George and Gracie (both 70 years old) have some stock currently worth $100,000. They paid $10,000 for it years ago. Capital gains income would be $90,000 if they just sold the stock. Assuming their Capital Gains tax rate is 20%, the tax would be $18,000, thus leaving them with $82,000 net proceeds to supplement their retirement income.

If instead, they had gifted that stock to their favorite charity, they would have received an annual annuity of $4,700 and an immediate charitable income tax deduction of $38,750. Assuming George and Gracie’s top tax rate is 24%, their immediate potential tax savings is $9,300. They would continue to receive the $4,700 a year for the rest of both of their lives. (If George dies after 10 years, but Gracie lives another 10 years, then the annuity would be paid out for 20 years.) 20 years of $4,700 a year comes to $94,000. The tax paid over those 20 years would be about $22,560, netting $71,444. When you add the tax savings of the charity deduction to that, their net realized value from the Charitable Gift Annuity works out to be $80,740.

Remember, if they had just sold the stock and paid the tax up front, they would have had $82,000 to work with? But by doing the charitable gift annuity, they were able to help out their favorite charity now, get an immediate tax savings rather than pay tax, and start receiving annuity payments to supplement their retirement for the rest of their lives. What a deal!

No more room in this article to talk about variations on this. Talk to your estate planning professional for more information.

Did you hear? Ecclesiastes 3:13 says, “Also that every man should eat and drink, and enjoy good in all his labor, is the gift of God.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.