Charitable giving strategies are as varied as estate planning strategies. Selection of the right charitable giving strategy depends on many of the same factors that go into an estate plan:
(1) the client’s net worth
(2) the number of causes that the client feels strongly about
(3) the client’s general giving strategy
(4) the client’s liquidity
(5) the client’s retirement income needs.
For asset-rich clients who want or need supplemental retirement income but who are willing to give up their access to principal, a charitable gift annuity can be the right tool for planned giving.
A charitable gift annuity is a contract between a charity and a donor under which the donor transfers property to the charity in return for a lifetime stream of income payments. Payments may be structured as a deferred or immediate annuity. The donor has a right to take an immediate charitable deduction for the gift, although the deduction will be less than the full amount of the gift. The charity retains the gifted assets when the donor dies, regardless of how many payments the donor has received from the annuity.
The amount of the immediate charitable deduction allowed for a contribution to a charitable annuity is equal to the value of the contribution less the present value of the income stream received by the annuitant. A portion of each payment received by the donor will be received as tax-free recovery of basis in the stock transferred. The amount of tax-free recovery will be determined by application of the Section 72 exclusion ratio generally applicable to annuities.