Charitable Gift Annuities & Remainder Trusts

CHARITABLE GIFT ANNUITIES

Creating a Charitable Gift Annuity is an attractive and relatively simple way for you to make a gift to The Cedars and to receive income for your lifetime (or for the lifetime of you and your spouse or partner).

A Charitable Gift Annuity is just as it sounds: You make a charitable gift to The Cedars, and you receive an annuity for life. A Charitable Gift Annuity is a contractual agreement between you and The Cedars that helps everyone involved.

Here’s how a Charitable Gift Annuity works:

  • You would make a gift of at least $25,000 to The Cedars. At the time of the gift, you and The Cedars would sign a Charitable Gift Annuity agreement detailing how the gift would work.
  • You could make the gift either by writing a check or by gifting appreciated stock. There are significant advantages to you if you create your Charitable Gift Annuity with appreciated stock. That’s because in donating appreciated securities to The Cedars, you avoid having to pay capital gains tax at the time of the transfer, and the full value of the stock can go to work for you, and, eventually, for The Cedars.
  • You would receive a fixed dollar amount four times a year for the rest of your life, or, if you so choose, for the life of yourself and one other person. The fixed-dollar amount is based on an annual percentage recommended by a national group called the American Council on Gift Annuities. Those percentages, in turn, are based on your age: The older you are as a beneficiary, the higher the rate.

For example, at the current rates, if you are 80 years old and the only beneficiary, you would receive an annual payment equivalent to 6.8% of your gift. If you are 86, that payment would be higher: 8.0%. If you name a second beneficiary – your spouse or partner – and that second person is the same age as you, the amount you receive would drop by about one percent.

All of these rates, as well as the tax benefits, would be spelled out as you consider making your gift. The dollar amount you would receive would not vary from quarter to quarter. That dollar amount is fixed.

  • You will be able to claim a charitable deduction for a portion of your gift. The exact amount of your deduction will be calculated at the time of your gift. It is usually somewhere between 40% and 60% of the value of the gift amount. The exact amount is based upon your age, the income you will receive, and the type of asset you use to make the gift. If you are unable to claim the full amount on your taxes in the year of the gift, you can “carry over” the balance of the deduction for the following five years.
  • You and the possible other beneficiary of the Charitable Gift Annuity should be at least 70 years old.
  • The annual annuity you receive from your Charitable Gift Annuity would likely be taxed at a lower rate than your regular income. Some of the annuity payment would be tax-free because it is considered to be return of principal. If you fund the gift with appreciated stock, some of the tax-free portion of the annuity will be taxed at the capital gains rate, which is generally lower than regular income tax rates. If you tell us your specific situation, and also the type of asset you are considering donating, we can provide those details for you.

CHARITABLE REMAINDER TRUSTS

Charitable Remainder Trusts are flexible and powerful instruments for making a significant gift to The Cedars, while providing you, as the donor, with income for your lifetime.

As with Charitable Gift Annuities, Charitable Remainder Trusts provide a strong income stream and many tax advantages. But there are significant structural differences from Charitable Gift Annuities.

  • If you were to create a Charitable Remainder Trust, you would be establishing a distinct and separate legal entity. This would give you as the donor a great deal of flexibility in how the Charitable Remainder Trust would be structured. That said, a Charitable Remainder Trust requires some initial and ongoing expenses for legal and accounting fees, all to be borne by you as the donor or taken from the Trust. For that reason, it’s not efficient to create a Charitable Remainder Trust for less than $250,000.
  • A Charitable Remainder Trust allows you to establish a Trust that would pay you – or, if you’d like, you and one or more other people – with income for your lifetime. Then, when the last beneficiary dies, the remainder – or what is left in the Trust – would pass to The Cedars or, perhaps, The Cedars and several other charities.
  • Charitable Remainder Trusts are very flexible.

You could create a Charitable Remainder Trust that pays you a fixed dollar amount every year, or the Charitable Remainder Trust could pay you a predetermined percentage of the fluctuating market value of the invested assets.

You could name one charity as beneficiary, or several charities – and, if written properly, the trust document could allow you to change charitable beneficiaries as the years pass.

You could set up the Charitable Remainder Trust not to pay you for several years until a particular date or event. (For example, a 50-year-old could set up a Charitable Remainder Trust that would not begin income payments until she turned 70.)

You could even set up a Charitable Remainder Trust to pay you or another person for a certain number of years, not for your lifetime.

Finally, unlike a Charitable Gift Annuity, you could fund a Charitable Remainder Trust with a gift of real estate or shares of a closely-held business.

  • All of this flexibility means that there is more complexity in the creation and management of a Charitable Remainder Trust than with a Charitable Gift Annuity. And for this reason, The Cedars does not serve as a trustee of Charitable Remainder Trusts. It is best to ask your bank, trust department, or attorney to fulfill that duty. It is also possible that a large charitable entity, such as your alma mater, would serve as trustee and allow a portion of the charitable benefit to go to The Cedars or other charities.
  • As with all planned gifts, we encourage you to seek your own legal and financial counsel.

For more information contact Tracy Ericson, Associate Director of Development, at (207) 221-7005 or tericson@thecedarsportland.org.