Giving Without Going Broke

By Henry L. Lefevre

If the widow that Jesus praised for giving her last mite to the synagogue were alive today, she might have better options -- like putting all of her savings into a Charitable Gift Annuity that would give her synagogue immediate access to all of that wealth and still provide herself with an income for life.

Is that a slight exaggeration? Maybe. A mite won't go very far.

However, according to the United Methodist Foundation of Northern Illinois Conference, Inc. (UMF), "A gift annuity provides you with a charitable gift and a guaranteed life income payment for yourself and/or another person." The UMF implies that the Charitable Gift Annuities provide an additional bonus when they say that the "Property passes to (the) charity with no probate fees. There are also no estate taxes." At times of sorrow, any reduction in paperwork is a boon. When the last beneficiary passes on, and has no more need for the annuity's income, the charity stops making payments. As the old saying goes: "You can't take it with you."

ADVANTAGES OF CHARITABLE GIFT ANNUITIES

The main advantages of Charitable Gift Annuities include helping worthy causes, reducing income taxes, and taking care of yourself, or a loved one, or both. Their popularity has risen now that interest rates on CDs and most other fixed income investments have plunged.

According to the Internet search engine Google.com, there are approximately 8000 web sites that provide information on Charitable Gift Annuities. Alas, you'll see more duplication of sites than you could get out of a Xerox machine.

Prominent church organizations accepting Charitable Gift Annuities include the Episcopal Church Foundation, the Presbyterian Foundation, the Salvation Army, and the Church World Service.

Charitable Gift Annuities help reduce your income taxes. They are especially effective when you give stocks or property that has appreciated to the point that you don't want to sell for fear that the government will take most of your profits. If that stock is exchanged for a Charitable Gift Annuity, the tax on your profits will drop and you will get a tax write-off for charitable giving.

Taxes on the sale of appreciated property often skyrocket when you are on Social Security. Social Security income is subject to taxes once you pass a specified income. The greater the income, the more of your Social Security gets taxed.

If your church is not set up to handle gift annuities, it can work with organizations that have experience in that field. As an example, the Church World Service currently handles tax-beneficial transactions through the United Methodist Foundation of Northern Illinois (UMF). The UMF handles the paperwork and oversees the investments for a small fee.

When the main wage earner in a family dies, the family income usually drops leaving the survivors with much less to live on. Charitable Gift Annuities provide an excellent method of preparing for rough times like those.

Income from annuities increases as the number of beneficiaries increases. It also rises as the age of the beneficiary goes up. Effective July 1, 2003, the American Council on Gift Annuities (ACGA) recommended an 8.0-percent return for 80-year old sole beneficiaries. It roses to 9.9-percent for single beneficiaries who were 86.

The ACGA's recommended rate for two dependents who are both 80 was 6.9 percent. When two survivors are covered, the income continues until both of the beneficiaries pass on. The ACGA keeps up with the times. It adjusts its recommended rate schedule whenever it detects major shifts in other fixed income rates.

Most charitable organizations follow the ACGA's rate recommendations. According to Lynn O'Shaughnessy writing for the May 2002 issue of the AARP Bulletin Online, "The council sets the rates with the aim of preserving for the charity about 50 percent of the donor's original gift." If the rates were set for the charity to break even, the IRS would probably quit giving the "giver" a tax break.

DISADVANTAGES OF A CHARITABLE GIFT ANNUITY

Possible disadvantages of a Charitable Gift Annuity include: you can't change your mind, you might face inflation, and the market will fluctuate.

Once you make a charitable gift, you can't change your mind. Lynn O'Shaughnessy's AARP article says that "Gift annuities are irrevocable. When a donor dies, any money left belongs to the charity; heirs have absolutely no legal right to it."

Inflation is the greatest foe of any annuity, bond, or other fixed income investment. With an annuity, you get the same yearly income regardless of how far the dollar's value falls. Therefore, it pays to diversify your investments so that some of your holdings will do well during a depression and some do well during an inflation. Don't put all of your money in one type of investment.

Markets fluctuate. If the going rates on fixed income securities rise above 10-percent, like they did during the Carter administration, you won't be able to take advantage of the higher rates. If the stock market surges, you can't get out of your Charitable Gift Annuity and put that money in stocks. On the favorable side, however, if CD rates drop, the money you receive from your annuity won't change.

Few young people today have seen a depression and they think that the dot.com bust was as bad as it gets. They are as optimistic as the compulsive gambler who spent the rent money on lottery tickets. During the Big Depression, stocks took a much steeper dive and stayed down for a much longer time. Will we have another Big Depression? Probably. We won't know until it arrives. However, should that sad day come, a good annuity underwritten by a strong organization can go a long way toward protecting you.

EXAMPLE

A typical example of a Charitable Gift Annuity provided by the Church World Service after July 1, 2003 is: Single beneficiary's age: 86 Value of stock when given $10,000 Original cost of the stock $ 2,732 Paper gain on stock $ 7,268 Charitable gift value $ 4,945 Annual Income from the annuity $ 990

Charitable Gift Annuities provide a great way for supporting charitable institutions like churches without smashing your next egg. Those interested in a Charitable Gift Annuity should contact the heads of their own denomination or call one of the following toll-free numbers.

Church World Service, Ron Blaum, 1-800-299-1516 x444
Episcopal Church Foundation, Patti Savoulidis, 1-800-697-2858x6242
Presbyterian Foundation, 1-800-858-6127

Before putting your savings in a Charitable Gift Annuity, pick an organization you have faith in. Then, get details on their financial history, how long they have been in the annuity business, and how much you will receive.

If the leaders of your own denomination can't help you open a Charitable Gift Annuity, get help from a financial advisor or visit the internet using http://www.google.com. Click on the advanced search option and insert the words: "church charitable gift annuity."

Charitable Gift Annuities can provide assistance to needy charities, reduce taxes and help people donate more while giving up less. As Douglas Smith of the Church World Service says Charitable Gift Annuities are a win-win type of gift." They are well worth investigating.

About the Author:

Henry L. Lefevre has published three books and has sold over fifty articles. Hank co-authored "The Good and the Bad News About Quality," authored "Quality Service Pays," and edited "Government Quality and Productivity--Success Stories"

He has been published by Alive!, Guide, Mature Lifestyles, Senior Living, Senior Magazine, 2 AM, Mystic Fiction, AlienSkin, Emporium, Caregivers Connection, Quality Magazine, Quality Progress, Quality Management, Lake Country Journal, ComputorEdge, and The Genre Sampler.

Article courtesy of Suite101.com.