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Using annuities to enhance your charitable contributions

Many people have certain charitable organizations that are near and dear to their hearts. So, it makes sense that giving to that entity can help to further their mission – and in some cases, it could also provide you with various financial incentives, too.

For instance, donations during your lifetime can reduce the amount of total assets that you have for estate tax purposes. In this case, not only will the charity benefit, but your heirs could end up paying less in estate tax to Uncle Sam in the future.

Annuities can play a key role in enhancing your charitable donations – both while you are alive and/or after you’ve passed away. Strategies using annuities can include making a direct gift to the organization or setting up certain types of trusts.

Annuities and Charities

Donating an annuity to a charity can be a great way to help a noble organization, while at the same time receiving some benefit yourself. Doing so simply requires adjusting either the owner or the beneficiary of the annuity.

In this case, the annuitant (i.e., the income recipient) receives the income from the annuity during his or her lifetime, and the annuity owner takes the tax liabilities. Then, upon the annuitant’s death, the beneficiary – in this case, the charitable entity – receives the cash value.

A charitable gift annuity, or CGA, is a contract under which a 501(c)(3) qualified public charity, in return for an irrevocable transfer of cash or other property, agrees to pay the annuitant’s lifetime income.

In this case, unlike a charitable remainder trust (CRT), part of the gift may be used immediately by the charity, with the remainder of the gift being invested into an account that will provide for the income stream to the annuitant.

If you itemize deductions on your income tax return, you may be able to claim a charitable income tax deduction for a portion of the original gift. This income tax deduction will be equal to the amount of the contribution, minus the present value of the payments that will be made to the donor and/or another beneficiary during their lifetime.

Understanding the Charitable Remainder Annuity Trust

Another way to help charities using annuities involves setting up a charitable remainder annuity trust. A charitable remainder annuity trust, or CRAT, is a type of trust in which the named beneficiaries receive a fixed payment of not less than 5% of the fair market value of the original principal over the course of a specified period, after which the remaining principal passes to a charity.

Items to Consider Before Using Annuities to Assist a Charitable Organization

There are many ways to help a charity that is close to your heart by using an annuity. Before you move forward with any type of plan or strategy, though, it is important to determine your primary reason for doing so. This can help to narrow down the best way to go about the process.

For instance, do you want immediate tax relief? Asset reduction for estate tax purposes? A legacy to be left in your name?

Setting up any type of arrangement using annuities can have many “moving parts.” Because of that, it is highly recommended that you first discuss your goals with an annuity specialist, and from there develop your particular strategy.

At Annuity Gator, we specialize in educating consumers (and financial professionals) about how annuities work, and where they may be used in retirement, income, and charitable planning. So, if you would like to set up a time to talk with one of our advisors, please feel free to call us at (888) 440-2468 or send us an email with any questions that you may have by going to our secure online contact form. We look forward to assisting you with giving to the people and organizations that are close to your heart.

Using annuities to enhance your charitable contributions

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