Factor Charitable Gift Annuities Into Estate Planning For Clients
By Stuart L. Dollar
Your client Abigail feels like she has exhausted her alternatives. She is 70 years old and wants her children to receive the value of her $250,000 securities portfolio when she dies. But she has a large estate, and her bequest could trigger estate taxes.
She does not want to sell the portfolio and distribute the cash. That is because of the capital gains taxes she would have to pay (she acquired the portfolio years ago for only $25,000).
Abigail also wants to leave something to charity, but not at the expense of her children. What can she do?
How about a charitable gift annuity combined with life insurance purchased by an irrevocable wealth replacement trust? Heres how it works:
Abigail donates her securities portfolio to charity. The charity sells the portfolio, and starts paying Abigail an $18,000 annual life income. (This is based on rates published by American Council on Gift Annuities, as of Jan. 6, 2003. All calculated figures are rounded.)
Over Abigails remaining life expectancy of 16 years, each payment carries some income tax advantages. She gets:
$1,100 tax-free return of principal.
$10,000 taxed as long-term capital gains.
$6,900 taxed as ordinary income (if Abigail lives beyond her life expectancy, payments will be 100% ordinary income).