Gift Annuities

MLR’s charitable gift annuity program can be a great option for conservation-minded individuals who desire a safe, secure source of fixed payments in return for a one-time donation.  Charitable gift annuities have become a widely-used tool to accomplish both financial planning and philanthropic goals, as annuities are part investment and part gift.

In exchange for a gift, MLR will agree by contract to pay a fixed amount each year to one or two beneficiaries for their lifetimes.  Gift annuities can be funded with a wide range of assets, entitle donors to a charitable tax deduction, and offer a competitive rate of return that avoids the uncertainty of the market.  They can be a great way to diversify some of your investment portfolio, take advantage of the tax planning opportunities for charitable gifts, and help MLR protect Montana.

 

Illustration

  1. You transfer stock, property or cash to the MLR Foundation. You avoid an immediate capital gains tax bill on any appreciated property, and avoid capital gains entirely as to the gift portion of the annuity.
  2. You also receive an income tax deduction for the gift portion of the annuity.
  3. In exchange for your gift, the MLR Foundation promises to pay you, or you and another person such as your spouse, fixed payments for your lifetime.
  4. Payouts are taxed at preferential rates and may even be largely tax-free. When combined with the charitable deduction, this planning option may offer you a more competitive rate of return than you thought possible.  Senior donors can expect even higher payout amounts.
  5. When you pass away, your gift will be fully devoted to protecting the Montana we know and love. Annuity payout rates are designed to leave MLR with approximately one-half of the initial value of your gift—leaving a significant legacy of conservation even with modest gift amounts.

Gift annuities and retirement planning—the Deferred Payment Gift Annuity

You can generate larger up-front tax savings and can entitle yourself to higher fixed payments in the future if you are willing to delay receiving payments.  This can be an attractive option for donors who are still in their prime earning years and can use a charitable income tax deduction now, and who want to secure a safe, fixed source of income for retirement.  Payout amounts are tax preferentially and may be substantially higher due to the deferral period.

Montana residents may qualify for the generous Montana Endowment Tax Credit through a gift annuity or deferred gift annuity.  Gift annuities may not be available to residents of all states due to regulatory requirements.

 

[Lots of examples on gift annuities since the devil is really in the details…the following is wholly plagiarized]

((Age Rate       Age Rate

65 5.7%           80  7.6%

70 6.1%           85  8.9%

75 6.7%           90 10.5%

For example, if a 65-year-old individual makes a contribution of $25,000 for a gift annuity, we will guarantee payments of $1,425 a year for as long as he or she may live.

 

Age      Rate of Return            Total Payout                Tax-Free Portion         Taxable Portion

65        5.7%                            $1,425                         $836                            $589

70        6.1%                            $1,525                         $959                            $566

75        6.7%                            $1,675                         $1,126                         $549

80        7.6%                            $1,900                         $1,355                         $545

85        8.9%                            $2,225                         $1,702                         $523

The table below shows various deductions allowed for a gift of $25,000 in cash, with

annuity payments made quarterly.

$25,000 GIFT ANNUITY

Charitable

Age Deduction

65 $  8,353

70 $  9,746

75 $11,036

80 $12,272

85 $13,425

/end plagiarized material]

 

Deferred payment gift annuities are also a great way for donors to help MLR keep our promise of perpetuity while taking advantage of the Montana Endowment Tax Credit.  For donors with highly appreciated assets, the “after-tax” cost of this type of gift can be pennies on the dollar.

While MLR offers the annuity rates suggested by the American Council on Gift Annuities, used by more than 95% of charities offering a gift annuity program, these are maximum rates.  It is also possible to lower payout rates and to defer the first annuity payment far into the future.  The effect of these “tweaks” to the standard payout schedule will greatly increase the charitable income tax deduction, thereby allowing the donor to maximize tax benefits.  This can be a great option for donors with high income tax burdens now, and who do not need to use the gift amount to guarantee them significant future payments.

For example, consider a 50-year old donor in a high tax bracket with stock worth $100, with a basis of $10.  In that donor’s hands, the stock is worth roughly $80: the $100 less the nearly $20 in capital gains tax that would be due upon sale.  By using the technique above to its fullest potential, the donor could obtain an income tax deduction of $34 and an additional Montana tax credit of $35—that’s only $10 less in value than selling the stock outright!  Furthermore, the donor could receive another income tax deduction if, after five years, she agrees to contribute the right to receive the annuity payments back to MLR.  Donors with a Montana income tax burden have a tremendous opportunity to use the planning opportunities in the tax code to leave a lasting legacy of conservation.