Monthly Planning Tips Archive
Are CDs Nearing Maturity? Consider a Charitable Gift Annuity
These days, retirees who own certificates of deposit face a grim choice when their CDs mature: Do I “roll over” into a new CD at a disappointing interest rate? Or should I consider a different path?
Donors who have a desire to help worthwhile causes can increase their spendable income by cashing in CDs at maturity and contributing the proceeds for a charitable gift annuity. The donor’s “spendable income” will go up because annuity payments give back a combination of interest and a portion of the donor’s original principal. The recipients’ lifetime payments will never change, and are unlikely to be exhausted, because they are backed by all the resources of the organization.
Donors can choose to have payments made to one or two persons (husband and wife or brother and sister, for example). About 50% to 70% of the payments will be tax free, during their life expectancies, and donors will be entitled to charitable deductions of 30% to 50% of the amounts transferred for the gift annuity. Donors also can fund a gift annuity with appreciated securities and enjoy capital gains tax savings, as well as a charitable deduction (see the following article).
Typically, recipients are paid 5% to 8% of the original gift amount, based on their ages when the gift is made. Older recipients are paid the most. Keep in mind that the gift annuity is an irrevocable gift commitment – but one with excellent tax and financial benefits. Please call our office for details.
Charitable Gift Annuities Can Help Investors “Bail Out”
“I've reached a point where I don’t want to keep so much invested in the stock market,” Denise declared. “It’s time to find an arrangement that provides a good income and also lets me sleep at night!”
Stock market volatility has caused people like Denise to sell some stocks and reinvest the proceeds in commercial annuities that pay a fixed income for life. In doing so, however, they typically lose 15% of any stock profits to capital gains taxes. A satisfying alternative for people who wish to benefit a worthwhile cause and reduce their exposure to stock market risks is a charitable gift annuity, funded with stocks that have gone up in value.
Investors with large capital gains can use gift annuities to “lock in” investment profits now, in case their stock drops in value, and receive fixed annual payments. In general, 30 to 50% of a donor's capital gain escapes capital gains tax completely. The remaining gain will be reported in small annual installments as part of the donor's annuity payments – and taxed at only 15% or even less, under current law. One more thing: Donors receive a substantial charitable deduction – and personal satisfaction, as well.
Movie Buff’s Guide to Estate Planning Choices
Film critics like to rate movies on a star system, with four stars being the best and one or zero stars the worst. The chart below evaluates wills, revocable living trusts, joint and survivor ownership, beneficiary designations and intestacy (the “will” the state has written for residents who haven’t done so).
| Flexibility and Control |
Avoids Probate |
Tax Savings Potential |
Help for Organizations |
|
| Will | ★★★★ | No | ★★★★ | ★★★★ |
| Living Trust | ★★★★ | Yes | ★★★★ | ★★★★ |
| Joint/Survivor Arrangements | ★★ | Yes | ★ | ★ |
| Beneficiary Designations | ★★ | Yes | ★★ | ★★★ |
| Intestacy | No stars | No | No stars | No stars |
All adults should have one or more of the four-star estate planning techniques that are well coordinated with other plans, such as beneficiary designations and jointly owned property arrangements.
A Legacy of Personal Values
Everyone needs a will, and everyone should have a “living will” (or other health care directives) as well. In recent years, many people also have begun creating “ethical wills” – statements of their beliefs, values and ideals that they plan to leave behind for friends and family.
These aren’t legal documents, and they are not made for the purpose of distributing valuables – although one could argue that ethical wills leave behind the most valuable of all assets: a person’s wisdom and knowledge drawn from a lifetime of experience. That’s important to people who would like to see their values live on.
Ethical wills tend to be written statements, but video or audio recordings of one’s thoughts and experiences serve as well. The content, not the form, is what’s important. What do people put into living wills?
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Expressions of faith and beliefs and the role such convictions have played in their lives;
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Lessons learned during life, including the impact of specific events and experiences;
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Personal messages of forgiveness, apology and reconciliation that were left unsaid during life;
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Messages of hope and inspiration for those who carry on.
One advantage of an ethical will is the ability to reflect on one’s thoughts over a long period of time – and polish the words to convey just the right meaning. Face to face conversations on these topics may not be as effective, or comfortable.
People who have made ethical wills often comment that they wish their parents or grandparents had left behind similar statements. Ethical wills are sometimes shared during life with family and friends, who commonly remark that they were touched by the words and were seeing their parent or friend in a new light.
You can find more information on ethical wills at www.ethicalwill.com; www.personalhistorians.org; www.lifehistoryservices.com and www.lifebio.com.
Supplement Your Will with a Letter of Instruction
The next time you review your will, take a look at how detailed the provisions are. Your will probably uses broad categories to dispose of your estate, such as “the residue of my estate to my children.”
How can you make sure items of personal property pass to “the right person”? You can prepare a letter of instruction. This is not a legal document, so you can write the letter yourself and revise it whenever you feel it is necessary. A letter of instruction allows you to direct certain items to a specific beneficiary, such as “my diamond earrings to my daughter Ruth.” This gives you the satisfaction of knowing that your property will go to someone for whom it has meaning. It also prevents disputes over the division of items in your estate.
In addition, the letter of instruction should assist your executor by providing burial instructions, listing life insurance policies, bank and brokerage accounts, safe deposit boxes and the location of deeds and other important documents. But remember, a letter of instruction is meant to supplement, not replace, a carefully drawn will.
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