A donor approaches your organization to gauge its interest in purchasing a building he owns next door. Your organization is interested, but cannot afford to pay market price for it. The donor is willing to consider making part of the transfer a charitable gift, but wants to receive some immediate financial benefit, too. What should you suggest?
Charitable Gift Types
In response to widespread concern regarding the current financial atmosphere, many of our clients are expressing anxiety specifically about their gift annuity programs. Accordingly, we offer the following thoughts regarding gift annuity rates, the reserves backing your annuities, the investment of your gift annuity fund, and additional considerations regarding offering gift annuities in the current environment.
A number of states, including California and New York, require charities to maintain a minimum reserve to back their gift annuity payment obligations. The rules regarding which annuities to include in a state’s minimum reserve computation can depend on the reserve state associated with the annuity.
In the vast majority of cases, a gift annuity will not end until the death of the sole or surviving recipient of the payments. Annuitants are generally delighted that they will continue to receive payments for life, and they wouldn’t have it any other way. Yet, in certain instances an annuitant might be pleased to learn some options exist.
One of the reasons gift annuities are so popular is that they offer donors payments that are fixed and are backed by the general resources of the issuing institution. The resulting predictability and security of annuity payments has strong appeal for a broad range of planned gift donors. The age of the donors has a lot to do with this appeal.
We hear regularly from puzzled clients who want to understand why a charitable remainder annuity trust (CRAT) they have just calculated fails to qualify as a CRAT, but a charitable remainder unitrust (CRUT) with the same payout rate doesn't also fail.
This article covers the idea of creating a gift annuity with the remainder value of a retained life estate. A donor may to do this if he/she needs extra income while in his/her home.
For many donors, their home is their most valuable asset. They most likely plan to live there for many years and it would never occur to them that they could use their home to make a charitable gift. Likewise, there are many donors with a valuable second home that they continue to use regularly and have never considered giving to charity. In both cases, the retained life estate may offer the key to unlocking just such a gift.
There are a variety of ways that a donor can make a commitment to your charity of an end-of-life gift that she can modify later or cancel altogether, if necessary. This sort of flexibility can be of great comfort to a donor who is nervous about her financial future, but wants to act on her desire to support a charity.
Good Old Bequests
Some bequests are more equal than others. Although the terminology may vary a bit, there are basically three different types of bequests: pecuniary (in which a sum of money is given), specific (in which a particular asset is given), and residual (in which all or a portion of the donor’s estate is given after taking into account pecuniary and specific bequests, along with the payment of debts and expenses of the estate).
Many seasoned institutional gift planners are partial to residual bequests.