There are some situations where either a charitable gift annuity (CGA) or a charitable remainder trust (CRT) would be appropriate, and other situations where one or the other is clearly preferable. This article will explore some of the considerations that should go into making a well-informed choice between the two.
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A charitable lead annuity trust is a way for a wealthy donor to pass assets on to heirs at little or no gift or estate tax cost while providing a generous gift to one or more charities at the same time. During its term, the lead trust makes payments each year to the charity(ies). Whatever assets remain in the lead trust when it terminates are distributed to individuals named by the donor, typically family members. Unlike a charitable remainder trust, which is tax-exempt, a charitable lead trust is a taxable entity, so trust investments need to be managed with this in mind.
In December 2010, Congress passed the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010. Among its numerous provisions, the 2010 Act extended the income tax rate reductions enacted during the Bush administration through December 31, 2012. This means that income and capital gains tax savings from lifetime charitable gifts of cash or other assets will remain unchanged at least until the year following the next presidential election.
In the event that Congress does not act in the meantime, on January 1, 2013 tax rates will revert to those in effect when President Clinton left office; the top income tax rate would be 39.6 percent, capital gains would be taxed at a 20 percent rate, and dividends would be taxed at ordinary income tax rates, potentially as high as 39.6 percent. These changes would increase the tax incentives for charitable giving.
PG Calc presents an excerpt from its white paper, State Gift Annuity Registration: A Primer on What It Means to Your Organization. If you have thoughts on this paper or recommendations for a white paper topic, please send them to firstname.lastname@example.org.
View all of our white papers, or our newest complement download: 7 Characteristics of Successful Planned Giving Programs.
Charitable bequests - charitable gifts made by will - are by far the greatest source of funds from planned gifts. It is commonly held that roughly four fifths of all funds raised through planned gifts are in the form of bequests.
If your organization has a purely “local” donor base, your planned giving program may not be affected by the laws of any state other than your own. But what happens when a key supporter moves to another state yet still wants to benefit the organization, whether through a charitable gift annuity or simply a bequest? Even charities that routinely work with donors throughout the country have to be mindful of all the ways legal and operational issues can have an impact on planned giving activity.
It’s clear – even to Congress – that donors and charities have been very pleased with the temporary IRA charitable rollover provision contained in the Philanthropy Protection Act of 2006. Although the IRA charitable rollover expired at the end of December 2014, the gift planning community is working hard to convince lawmakers to continue, and ideally to expand and make permanent, the tax incentives for using IRAs to make charitable gifts during life.
There’s always going to be some minimum funding amount for a charitable remainder trust (CRT). Anything less simply won’t be sufficient. In such a situation, do you somehow try to make a CRT work anyway, or is it better to focus on either a charitable gift annuity (CGA) or some other alternative? As you might expect, it depends.
Everyone needs to go to the doctor now and again. Getting a checkup on a regular basis is important to good health. The same can be said for your organization's gift annuity program. Without the benefit of routine assessments, your program may not succeed as well as it could.
Why assess your gift annuity program
There are at least four reasons to assess your gift annuity program.
July and August is audit season for many of our clients. With this annual visit from the auditor comes an annual request for calculations to satisfy Financial Accounting Standards Board (FASB) requirements. These requirements are designed to create uniformity in how charities report their planned gifts, allowing more meaningful comparison of financial statements across charities. While the primary purpose of the FASB requirements is to guide charities to report planned gifts in a standardized way, it is worth considering how these calculations may help you accomplish other tasks. Might your charity’s management team use these calculations, or related ones, to assess the success of your planned giving program, estimate investment and longevity risk, and make adjustments where appropriate?