Charitable gift annuities
 

My husband and I are considering charitable gift annuities this year for the tax benefits and setting up an income stream. Does anyone have experience with these? Anything we should be looking out for?

I would suggest contacting either Vanguard Investments or Fidelity Investments to explain and to handle the transaction.

Hmmm, Well since an investment company will not make a penny from our charitable gift annuity, not sure they would have any interest in talking to us.

I am surprised that these are not more popular in the current market where you can’t earn any reasonable interest rate safely. Besides the considerable tax benefit, what attracts us to this vehicle is guaranteed interest rates of 4.3% for me at age 66, and 6.5% for my 80 year old husband. And this is for life. IF we aren’t missing something - which is why I am here.

Both Vanguard and Fidelity have a 501(c)(3) organization that offer a donor-advised giving account where you can deposit money and direct that money to go to the charities that you want to support, including those that offer charitable gift annuities. I would suggest that you talk with either or both investment companies because they can probably answer any questions you have and offer good advice.

I would think that whoever sells this type of annuity would be earning a commission.

Actually, the investment company *will* charge the annuity a fee for their management services. That's why you want a low-fee company. They need to cover their management costs, including the cost of sending you money monthly (or quarterly, or whatever you decide) and complying with government requirements.

My career was in the non-profit sector. We loved it when a donor set up a fund like this for us.

In my hometown, we used the Greater (Hometown) Foundation to manage such annuities and other types of donor-advised funds. As a non-profit themselves, their fees were very low. And the local perspective was valuable. They were pleasant to work with. They used professional money managers for the billions they had under management.

Of course, you are aware that at the end, the funds go to the charity and not to your heirs.

That's why you don't go to a salesman. Instead go to the investment firm or the charitable foundation.

Are you saying that, if you make a charitable donation of $100,000, they will pay you $4,300 (4.3%) per year for life, which is about 20 years for a 66 year old woman? If so, that is only $86,000 ($4,300 x 20 years). Not a good deal. Or, am I missing something? But, you will get a tax deduction in the first year, which will be a portion of the $100,000 donation.

Yes, you get a good tax deduction (if you itemize) in the first year.

You also get to support a cause that is important to you.

And you don't have to think again about how to invest this money. So your life is simplified.

Anyone thinking about this strategy should talk to their CPA/tax accountant before proceeding.

As an alternative, you could deposit the $100,000 into an S&P 500 index fund, which historically will earn an average 8 percent return, or $8,000. Each year, you can withdraw $4,300 for yourself and donate the remaining $3,700 to the charity. That way, you will get a tax deduction every year, and, at the end of 20 years, you will have donated $74,000 to the charity and still have your initial $100,000 to leave to the charity or to your heirs. You will also have saved the charity the expense of paying for the annuity and the associated fees. Note that, with the gift annuity, a large portion of your initial donation will need to be paid out by the charity to purchase the annuity, so they won't actually receive anywhere near the amount you donate.

Well the number that I have at my fingertips is $51,000 savings in taxes on $600,000 gift annuities between my husband and myself equally portioned this high income year. So that is prominent in our thinking. Going directly to make this arrangement with each charitable organization means zero fees from our understanding.

We are aware of the following downsides: if any of these charitable organizations go out of business, we are out of luck. At the end of our lives, there is no portion going to our beneficiaries. Also, the contracts are irrevocable. And there is no allowance for inflation.

So again, are we missing something?

See Post No. 10. Just an alternative idea.

Make sure you verify the tax deduction limits on charitable donations. You are only allowed to deduct a certain percentage of your income.

See post 10!
 

So right! Not just an alternative, but a much better idea. And there a many better alternative as well. Talk to your CPA and financial advisor for sure.

Hubby is 80
 

Appreciate the ideas but at our age we really don’t see any sense in being so exposed to this market. We think it’s artificially inflated by funny money and zero interest rates.

And yes our income this year allows the calculated deduction fully- definitely agree it’s smart to verify that.

Well we’re still thinking back and forth on this. Have not made up our minds. Very much appreciate the comments.