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| Best Practices: Matters of Trust |
To Give and Receive
Lani Luciano
06/01/2005
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Like many senior citizens, Warren Allen, 85, and his wife, Paula, 73,
received ample unsolicited advice on how to combine their estate plans and
philanthropic pursuits. They paid little attention to it. As patriarch of a
family that has been giving generously for more than a decade, Warren knew
exactly where and how he wanted to allocate his charitable dollars. Then, six
years ago, the Allen family changed course.
“We support local causes,”
explains Warren who, with his two late brothers, helped their father turn a
small chicken hatchery in Seaford, Del., into the $500 million, 2,400-employee
company it is today, Allen Family Foods. Since 1993 the family has poured
roughly $9 million into community projects ranging from the Seaford Little
League to a biotech lab at the University of Delaware, mostly through outright
contributions to the Delaware Community Foundation and family donor-advised
funds.
TOP VIEW
Charitable annuities can offer the best of both investment and philanthropic
worlds. Annuities buyers are entitled to income tax deductions, estate tax
reductions and even guaranteed income while their charities receive sizeable
donations. But the various charitable annuities options require a buyer to
choose carefully to meet his—and his heirs’—financial goals. |
In late 1999, however, Warren took another look at some of the
requests he had received to donate money through charitable gift annuities
(CGAs). It was an epiphany of sorts, brought on by his distaste for the IRS and
his search for tax breaks (it was too late in the tax year to do anything that
would require advance planning). With this type of annuity, he could donate a
lump sum—in either cash or equities—to a charity; in return the charity would
pay him a fixed amount of interest, usually on a quarterly basis.
Since then,
the Allens have funded nine CGAs, totaling more than $550,000, mostly in cash,
for the Delaware Foundation. In addition to removing that money from their
taxable estate, the couple has received roughly $200,000 in income tax
deductions. The deduction a purchaser can claim for a charitable gift annuity is
the present value of the amount that the charity expects to wind up with after
paying out the interest to the beneficiary.
Charitable annuities are
attractive to seniors because older annuitants receive higher payments. Indeed,
the annuity provider sets the interest rate deliberately high to attract
annuitants—either the investor or someone he names—who are older than 60,
because the payments continue for the rest of that person’s life. “For people my
age, the guaranteed annual interest rate was more than 9 percent,” Warren
says. “That looked like a pretty good return compared to elsewhere in the
investment market.”
Even with current efforts to abolish the estate tax,
increased longevity and an uncertain investment climate can be powerful
arguments for blending charitable donations with a guaranteed future payment
stream. Gift annuities are just one option. Charitable trusts or even commercial
annuities can further estate, tax and philanthropic goals, depending on the
investor’s philosophy, circumstances and needs.
Charitable Gift Annuities
CGAs are popular last-minute tax savers because
they are easy to set up, requiring little more than a simple legal contract and
the transfer of the donated assets. They are not recommended, however, if you
want to name a child or even a young or middle-age adult as the
beneficiary.
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