Gifts That Produce Income

Charitable Gift Annuities

A charitable gift annuity is a combination gift to the Ice Age Trail Alliance and a lifetime income to you.

The charitable portion of the annuity is a contribution that will support the Alliance’s work on the Ice Age National Scenic Trail. The annuity portion provides you or someone you designate a fixed income for life. Annuity rates are determined by age; the older you are, the higher the annuity income. A substantial portion of the income is a tax-free return of your gift.

Example: Jack is a longtime member of the Alliance and currently has certificates of deposit that pay him 1.0% annually. He may consider using $50,000 of the current CDs to purchase a charitable gift annuity that would provide a payout of 7.2%, or seven times the rate he currently receives.

The gift annuity would pay Jack $3,600 annually, while the CD pays just $500. Jack would also receive a charitable deduction for his gift, and a substantial portion of the annuity income would be tax-free for his anticipated lifetime.

Charitable Remainder Trusts

Charitable remainder trusts (CRT) are a more sophisticated giving tool and are similar to gift annuities. A CRT provides income for you, a current tax deduction and a substantial gift to the Alliance at the death of the income recipient. Unlike a gift annuity, a CRT provides flexibility for future deposits.

A CRT is an irrevocable trust and is typically funded with highly appreciated property. The structure of a CRT has a current beneficiary and a charity as a remainder beneficiary. The current beneficiary can receive either a fixed amount each year or a percentage of the value of the trust each year for a period of years.

Charitable remainder trusts provide some key benefits:

  • An immediate potential income and gift tax deduction
  • Exemption from capital gains taxes
  • Exemption from tax on the investment income
  • Contributions to a CRT made at death under a will can reduce estate taxes
  • An effective strategy for planning for retirement – the trust can provide that income distributions do not begin immediately

Example: Fred and Shirley, 75 and 72, are looking forward to retirement and using assets they have accumulated over their lifetimes to provide a comfortable income. One of their major assets consists of several apartment buildings. The apartments require significant maintenance, and at age 75, Fred is “tired of the calls in the middle of the night.”

After meeting with their financial advisor, Fred and Shirley decide to transfer the apartments to a Charitable Remainder Unitrust (CRUT). The transfer will avoid the capital gains due at the sale of the property and provide a lifetime income significantly higher than the cash flow from the property. The trust will then benefit the Ice Age Trail Alliance at their deaths.

Using the CRUT provides Fred and Shirley with $162,921 in immediate tax savings based on a combined 35% bracket, 20% more income immediately, and a major gift to the Alliance at their deaths.

For more information on either of these giving options, please contact Luke Kloberdanz at [email protected] or (608) 798-4453 ext. 222 or Mike Wollmer at [email protected] or (800) 227-0046.