There are many ways to make charitable gifts — and some of them even generate income for you. Learn about four of those options here
The term “charitable giving” usually brings to mind making donations to nonprofit organizations, and sometimes receiving a tax deduction as a result. What many people don’t realize is that there are many ways to make charitable gifts — and some of them even generate income for you.
It may seem surprising, but giving instruments like a charitable gift annuity, deferred gift annuity, charitable remainder annuity trust, or charitable remainder trust allow you to fund a giving tool while generating a stream of income for yourself or your family members. Here’s how they work:
Charitable Gift Annuity
This giving tool is essentially a contract between you and a designated charitable organization that guarantees you a stream of income for life in exchange for your donation, regardless of fluctuations in the market. The remaining balance passes to the charitable organization when the contract ends, and often, you may choose several different beneficiary options:
- You
- You and your spouse
- Any two beneficiaries you name
These options are attractive for a few reasons. First, of course, you have a guaranteed stream of income regardless of how the market is performing. In many cases, the payments are higher than the interest you may be earning on the investment or cash, and you receive more income for your money. A charitable gift annuity also has tax advantages: You will receive an immediate income tax deduction for a portion of your gift and a portion of your annuity payment will be tax-free for a number of years. It’s recommended that you be at least 65 years old at the time of your gift.
Deferred Gift Annuity
If you’re younger than age 65 but are looking for a long-term giving option that will generate income in the future, a deferred gift annuity may be the right choice. This instrument allows you (or chosen named beneficiaries) to receive fixed annuity payments for life starting at a date in the future. Age restrictions will vary between organizations. To establish a deferred gift annuity with the Catholic Community Foundation, for example, donors must be at least 40 years old to fund the gift and it is recommended that beneficiaries be at least 65 or older to begin receiving payments. The remaining balance passes to the Foundation when the contract ends.
Deferring payments allows a higher annuity rate and typically generates a larger charitable deduction, which gives your gift greater impact. Payments are guaranteed and fixed regardless of how the market is performing, so you can count on the income when you need it, such as in your retirement years.
Charitable Remainder Annuity Trust
With a larger gift, the charitable remainder annuity trust is an attractive planned giving option for many. When you transfer cash, securities, or other appreciated property into the trust, the trust will then make fixed annual payments to you or the beneficiaries you name for life or for a pre-determined number of years. When the trust terminates, the remainder passes to your designated charitable organization to be used as you have directed.
A charitable remainder annuity trust, sometimes called a CRAT, has tax advantages, as well. You’ll receive an immediate income tax deduction for a portion of your contribution. You’ll also pay no upfront capital gains tax on the appreciated assets you donate. Because you can receive trust income during a specific time frame, it’s a good tool to address upcoming expenses such as college tuition payments.
Charitable Remainder Unitrust
Also for larger gifts in in cash, securities or appreciated assets, another giving option is a charitable remainder unitrust. This type of trust is different than a CRAT because it pays a percentage of the value of its principal, which is assessed annually, to you or your named beneficiaries. When the trust term is over, the remainder of the trust passes to the charitable organization to be used as you have directed.
Like the other instruments, you may choose to receive income for life or you may designate a specific term of years in which you receive the benefit. You’ll pay no upfront capital gains tax on the appreciated assets, and you’ll receive an immediate income tax deduction for a portion of your contribution. If you wish, you can also make additional gifts to the trust for additional income and tax benefits, making it a flexible option if your circumstances change.
Establishing an annuity or trust can be an effective way to share your blessings with others, while still receiving the income you or your beneficiaries need during this life. To learn more about establishing these types of gifts with the Catholic Community Foundation, visit ccfmd.org or contact us at 410-547-5461.
