Gift Opportunities When Interest Rates Are Low

“It’s an ill wind that blows nobody any good,” according to 16th century writer John Heywood.  For example, the current low interest rate environment is good for mortgages, not so good for CDs and money market accounts, and very good for certain gift arrangements that people can use to support worthwhile causes and organizations in these difficult economic times.

Tax-Free Gift Annuity Payments Go Up

Donors who arrange charitable gift annuities today will enjoy payments that are larger than what they might receive from interest-bearing accounts.  Even more important is the fact that most of their annual payments will be tax free during their life expectancies. 

Under an IRS formula, the tax-free portion of an annuity payment soars when interest rates are low.  So donors who establish a gift annuity this month might expect that 60% to 75% of their payments would be tax free.

Charitable deductions are also available when you arrange a gift annuity, and it must be said that deductions are smaller during times of low interest rates.  But many gift annuity donors do not itemize their deductions and might receive little or no advantage from a charitable deduction.  Everyone, of course, can benefit from tax-free income.

Switching from fully taxable investments to a gift annuity may also reduce taxes on Social Security benefits.  Retired people are subject to tax on up to 85% of their Social Security payments if they have too much income from other sources.  Replacing outside income with mostly tax-free annuity payments may reduce these taxes.

Contact us for more information.

Tax Benefits of Giving a Home While Continuing to Live There

Congress has discussed providing large tax breaks for people when they buy homes, but what about taxpayers who already own a house and are content to stay there?

Over the years, many of our supporters have left all, or a portion, of the value of their residences or other real estate to us, usually through their living trusts or wills.  A better plan – especially when interest rates are low – may be to give one’s home today but keep the right to live in the house for life.  Charitable deductions are at record high levels for these arrangements, and donors can invest their tax savings for additional income.

Here is an example: Roberta, age 72, owns a bungalow worth $300,000 that she plans to leave to us in her will when she dies.  But if she executes a deed of gift today, keeping the right to lifetime occupancy, she can deduct more than $184,000.  In her 25% tax bracket, that will provide about $46,000 in tax savings that she can spend or invest.

We likely would sell the house after Roberta’s passing.  If she wanted a family member to receive some of the sale proceeds, she could retain full ownership as to a percentage of the house – 50% for example.  This gift technique can be used with vacation homes and condominiums – or even farm property. 

Contact us for more information.

Unusual Trust Provides Relief from Federal Estate Tax

Estate taxes are now a concern only for persons with taxable estates in excess of $3.5 million.  But a 45% “death tax” awaits people with larger estates.  There is a rare gift technique, the charitable lead annuity trust, that can provide significant gift and estate tax reductions and tremendous assistance for our programs.  Here’s an example:

Howard, age 67, is a widower with two children who are both in their 30s.  His stock portfolio suffered the same losses experienced by most investors in 2008, but his estate still exceeds $10 million.  Howard is concerned about the federal estate tax, but he would also like to assist several organizations, which need support now more than ever.

Howard could transfer $1 million in stocks into a lead annuity trust that will pay various charities $60,000 annually for 20 years and then disburse all trust assets to his children.  Using an IRS formula, Howard can eliminate any gift taxes on the $1 million, thanks to low interest rate factors.  If we assume the stock market gets back to its historic returns, the children might receive more than $2 million from the trust after 20 years, free of all federal transfer taxes. 
 
What do all of these gift techniques have in common?  They enable thoughtful people to support worthwhile causes in a tough economy, while arguably improving their tax and financial situations. Please contact us if you would like additional information.

 

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