Here’s an example of the low cost of giving appreciated property like stock to MLR, illustrating how a deferred gift annuity structured to take maximum advantage of the tax credit can make the benefits to you and MLR even sweeter.
Say you have stock worth $30,000, with a basis of only $5,000, as you have held on to the stock for many years. To convert this stock to cash you’d ordinarily have to pay an immediate capital gains tax of up to $7,000. Thus, the stock is worth only $23,000 in your hands. If you were to give the stock outright to MLR or another charity, you would avoid this capital gains tax, and could make a gift worth the full $30,000 to MLR, with tax savings of perhaps $10,000 from the deduction for a charitable contribution. Your “after tax cost” for the $30,000 gift to MLR would only be $13,000: $10,000 benefit to you in taxes saved, compared with $23,000 if you had sold the stock.
With the Endowment Tax Credit, things get even better. By accepting a modest rate of return for the deferred charitable gift annuity, and pushing the first annuity payment out years into the future, amazing results can be achieved. In the example above, you would use the $30,000 worth of stock to fund a deferred gift annuity, with MLR promising to pay you 5% ($1,500) per year, starting near the end of your life expectancy. This strategy maximizes the amount of the tax credit by lowering the present value of the income stream you receive in return to perhaps $5,000. You would still be able to receive about $8,000 in income tax savings for the charitable contribution, and through the Endowment Tax Credit, an additional $10,000 in dollar-for-dollar reduction of your Montana tax liability—resulting in a gift to help protect Montana for generations to the tune of nearly $30,000, at a mere $5,000 cost to you. That’s less than two dimes out of your pocket for every dollar permanently dedicated to protecting open space, fish and wildlife habitat, and Montana’s agricultural heritage.
Many donors find that the easiest way to take maximum advantage of the credit is through a deferred charitable gift annuity, which is a simple contract between the donor and MLR where the donor gifts cash or property to MLR, and in return MLR promises to pay the donor a certain annual amount for the rest of their lifetimes, starting at some point in the future. MLR gift planning staff are adept at working with your advisors to ensure that the gift transaction is quick, easy to understand, and provides the maximum allowable credit. A Montana taxpayer is allowed a tax credit in an amount equal to 40% of the present value of the aggregate amount of the charitable gift portion of a planned gift made by the taxpayer during the year to any qualified endowment. Donors can obtain even more generous tax benefits by using highly appreciated property such as stocks held long-term to fund the gift annuity.
For more information contact Christian Dietrich at (406) 443-7027, or by email at [email protected]