The Gift That Keeps Giving

October 1st, 2009

By: Dr. Thomas E. Dieters, Vice President, Comerica Bank Charitable Services Group

Where else can you go in today’s financial environment to find a vehicle that pays attractive rates (75% to 80% of the income can be tax free), can reduce your tax bill, provides a guaranteed fixed payment for life, and will support your favorite charity? Look no further than a charitable gift annuity.

Charitable gift annuity rates range from 5.3% to 9.5% for individuals 65 and older. When compared to today’s very low CD rates, the gift annuity can be an extremely favorable investment for individuals who are not only searching for great rates, but who desire to support their favorite charity. In addition to favorable income payment rates, given today’s historically low IRS Discount Rate of 2% for February, the income payments will be mostly tax free.

A gift annuity can be funded with cash or securities that are transferred to the charity in exchange for a fixed payment from the charity for life. The remainder ends up with the charity.

It is important to keep in mind that when funding a charitable gift annuity, it is an irrevocable transfer of assets and they cannot be returned to the donor. In addition to the lifetime income payments, the donor also receives an income tax charitable deduction for a portion of their investment.

These types of “split interest” gifts are an appealing way for investors to transfer market risk to the charity while enjoying a fixed income stream. The downside of this type of investment is the inability to keep pace with inflation since there is no increase in payments over time. As with any fixed income investment, it is important to consult with your financial and tax advisor before entering into this type of investment.

Most charities have a minimum contribution of $10,000 for all charitable gift annuity contracts. Rates for these contracts are based on age and follow the recommended rates set by the American Council on Gift Annuities. The contract can be written for one or two lives only, and not for a term of years. Younger donors may wish to defer the first income payment from the contract and receive a higher payout rate than they would at their current age.

With market conditions as volatile as they are today combined with extremely low interest rates, the charitable gift annuity can be a rock solid place to invest part of your portfolio. Besides, how else can you secure your financial future and provide much needed support for your charity of choice with no cost to set up the investment? No time is better than now to investigate a charitable gift annuity.

For more information on how a charitable gift annuity can benefit the David Lawrence Center, call the Foundation at 354-1434.

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