These are charitable gifts that are made during a donor’s lifetime. The gift is made to KML and the donor receives an annual payment in return to help supplement their other income. There are different types of Life Income Gifts, but all of them are designed to benefit the donor during their lifetime as well as provide a nice gift for KML when the donor goes to heaven. One example is the Charitable Gift Annuity (CGA). A gift of $10,000 or more qualifies the donor to receive annual income at a rate that is higher than savings or money market rates, an immediate tax deduction, and ultimately a gift to KML.
Charitable Gift Annuity
An annuity is a financial product that you can use in your retirement or estate planning. You can purchase an annuity in advance of retirement, and then receive a steady stream of income from the annuity after you retire. There are many types of annuities, and many opinions regarding annuities, so discuss this option with your financial planner and/or insurance agent before investing.
There is one unique option in which you can use an annuity as a tool for making a charitable donation. This option is called a Charitable Gift Annuity (CGA). A CGA is established when you fund the annuity with your own assets, but give the annuity to a charitable organization. As with other annuities, a stream of income is paid to you, your spouse, or other designated person, but in the end, the remainder of the fund’s value is given to your designated charity instead of going to the insurance company. In short, this is an annuity that provides a charitable gift in the end. CGAs can be particularly appealing to people who have appreciated assets and want to avoid capital gains taxes.
Here are a couple of examples:
Example 1: When they were younger, John and Susan purchased stock in ABC Company for $10,000. That stock has now grown to a value of $40,000. They realize if they sell the stock, they will be faced with some substantial capital gains. They decide to transfer the stock to a Charitable Gift Annuity. The charitable donation qualifies John and Susan for a tax deduction, and they avoid paying capital gains taxes.
The annuity is designed to provide quarterly payments which will continue throughout the lives of both John and Susan. After both of them die, they have designated the remaining value of the annuity to be split between their church and KML. This arrangement could help reduce probate costs and estate taxes, and is a wonderful way to support the Lord’s work.
Example 2: James is a widower with one adult daughter, Sharon. James is ready to retire and wants to sell his farm to a local developer. The value of his land has increased dramatically, so he expects a large windfall of cash. James lives fairly modestly, and doesn’t really need additional income to sustain his current lifestyle. He also wants to provide a continuous income for Sharon in her later years rather than leaving it all to her at his death.
James works with an attorney and the KML Foundation to set up a Charitable Gift Annuity. He designates Sharon as the sole annuitant with annual payments starting when she turns 60 years old. With this arrangement Sharon will receive regular payments from age 60 until she dies. Upon her death, the remaining assets go to the KML Foundation. That money will become part of the Foundation’s endowment, and the interest that is earned will be used to support tuition assistance and other Foundation projects.
Charitable Remainder Trust (CRT)
A trust is a financial tool that allows some unique investment benefits. In simple terms, a trust is a fund into which you place assets, and then determine the way in which you want those assets distributed. Trusts can be used to fund future costs for education, for holding inherited assets for a minor until the recipient reaches a designated age, for providing income in retirement, or many other uses. Trusts can be funded while the owner is alive, or can be funded after death through their estate plan.
A certain type of trust, called a Charitable Remainder Trust (CRT) can also serve as an option for making a charitable donation. A CRT is established when you make an irrevocable gift into the trust. Once the trust is created and funded, you have options as to who receives the payments from the trust, and the timing of those payments. At a predetermined time, the payments end and the charity receives the remainder of the trust’s funds. This is a great option for those who wish to receive a steady income, and also make a substantial gift to ministry.
Here are some examples:
Example 1: Kevin has accumulated a variety of assets over his lifetime, and now must decide on his retirement and estate plans. He needs some supplemental income at this stage of his life, but he doesn’t have children who could benefit from inheriting his estate. Kevin irrevocably transfers his funds into a Charitable Remainder Trust and names his church and KML as the recipients of the balance after he dies. During his years of life, the trustee of the fund invests the money and pays a fixed percentage to Kevin on a regular basis. Upon Kevin’s death, the remainder is given to his church and KML. This approach provides the dual benefit of helping support Kevin in his retirement years, and also supports two of his treasured ministries.
Example 2: Jeff and Nancy have been very successful with their family business. They made a lot of money and are ready to sell the business and retire. Jeff and Nancy want to share some of their wealth with their children, but they also want to make some donations to their church and KML. Jeff and Nancy establish a Charitable Remainder Trust. They decide that their children will receive payments from the trust for the next ten years. That income will help each of their children get established in their lives and provide some income in advance of their eventual inheritance. The other blessing is that the children will receive that income while Jeff and Nancy are still alive. At the end of ten years, the balance of the funds will be split as Jeff and Nancy had determined – 75% of the funds will go to their church and 25% will go to KML.
Charitable Remainder Trusts can be powerful and beneficial tools within your estate plan, but they also require the drafting of a legal document by an attorney and a rather large financial investment. Consult with your financial or estate-planning professional before making a decision regarding a CRT.
As with any investment option, it is always wise to consult with professionals who can advise you and design a plan that meets your financial and philanthropic goals.
Charitable Lead Trust (CLT)
Example 1: Karen recently became a widow and received a large payment from her husband’s life insurance policy. She also has some stock that has performed very well over the years. Karen doesn’t need all of that money at this point in her life, but she wants to support KML and also leave a generous inheritance to her children. To accomplish her goals, Karen establishes a charitable lead trust. According to her wishes, KML will have use of the income from the trust for the years in which she lives, and upon her death, the remaining funds will return to her estate and become part of the inheritance for her heirs. With this arrangement, Karen can see her gifts in action at KML, and she also provides a wonderful financial blessing for her children.
Example 2: Chuck and Betty have been faithful supporters of the church, but never had the money to support other ministries, like KML, as fully as they wanted. Although they aren’t rich, they set aside some funds and built and nice nest egg for retirement. Now they are ready to retire, and suddenly received a windfall from an unexpected inheritance. They see this as an opportunity to support KML in a special way without reducing their church offerings. At the same time, they want to keep a substantial amount in their estate for their children. To accomplish their goals, Chuck and Betty create a charitable lead trust, and authorize KML to receive a percentage of the funds for special projects. Upon the death of both Chuck and Betty, the balance of this trust will return to the estate and be included in the inheritance.