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Charitable Gift Annuities and Your Estate Plan

Charitable gift annuities are a way to make donations to a nonprofit university, hospital or other charitable institution while receiving income and tax benefits in return. Donors (known as annuitants) can take a charitable deduction on their income taxes in the year the gift is made. In addition, they receive a long-term income stream. For these reasons, this type of annuity can be an effective estate planning and wealth management tool.

You can set up a charitable gift annuity as an individual or together with your spouse. As the annuitant, you make a gift of cash, stock or other assets to a federally tax-exempt organization. The minimum gift to establish a charitable annuity varies, but many organizations require at least $10,000. The charity places the gift in a reserve account and invests it. On a preset date, you begin receiving a monthly or quarterly payout of principal and interest for life or for an agreed-upon duration. When the annuity ends, the charity keeps the remainder of the funds as a gift. The size of your charitable deduction is based on the estimated amount that the charity will eventually realize.

The size of your periodic payments depends on a variety of factors, including your age at the time of donation. The younger you are, the smaller your payments will be, because they will be stretched out over a longer period of time. If you desire a higher rate of interest, you could set up a deferred payment schedule. Using this method, you can make a donation today, but choose not to receive any payments until five or 10 years from now. Charities may offer higher interest rates for these arrangements because fewer payments will need to be made. Another reason for deferral is that the interest portion of the periodic payments you receive is taxable income. These payments can be staggered until a later date — such as your expected retirement — when you will likely be in a lower tax bracket.

It is advisable to speak with an estate planning lawyer if you’re considering a charitable gift annuity. The attorneys at Hayes, Berry, White & Vanzant, LLP would be happy to sit down with you to discuss your objectives. Call 940-230-2386 or contact us online to arrange a meeting at any of our four offices, located in Denton, Flower Mound, Gainesville and Celina.

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