When most folks planned to retire, it was their hope, if not expectation, that they’d live at least in part off the interest earned on savings deposits. Then the great recession hit, and interest earned dropped dramatically. As of press time, the Federal Reserve has raised interest rates twice in three months. Still, interest on a six-month certificate of deposit averaged 0.14 percent. Last year at this time it was 0.13 percent. Meanwhile, many folks wonder if there’s some way—indeed any way—to get a higher return on their money. The answer is yes, there is, and it can also be designed to let you do some good in the Lord. This can be done through either of two vehicles: a Charitable Gift Annuity or a Charitable Remainder Unitrust.
Now before I describe them, let me explain one thing. You’ll notice that both of these begin with the word “charitable.” That is, they were created first and foremost to leave gifts to charitable organizations (or in a narrower context, ministry—such as Lutherans For Life). That should be the main motivator in entering into an agreement to do one of these vehicles. Other benefits, such as income, tax incentives, etc., should be secondary motivators. While charitable intent should predominate, the secondary benefits have never been more attractive, in my opinion.
First, let’s look at a Charitable Gift Annuity (CGA). Conventional wisdom has always held that these shouldn’t be done unless you’re in your 70s (and preferably your later 70s or even 80s). That’s because one of the key variables—income paid—just wasn’t that much, relative to other things. However, let’s look at a sample CGA for a husband and wife who are both 69. They have a variety of assets, including a $25,000 certificate of deposit that’s up for renewal. Instead of renewing that CD, however, they establish a CGA to benefit Lutherans For Life (which they’ve also supported financially in the past). Here are the benefits they will receive:
Annual interest rate: 4.5% (Please note that the rate will be reduced by slightly over 1% because of a management fee that will be levied by the administering foundation.)
Annual income of $1,125 (of which $848+ is tax free, making the return actually higher than the percentage rate cited above)
Charitable deduction of $6,839+ (also positively impacting their bottom line)
The couple would continue to receive income from the CGA guaranteed until both husband and wife die. The remaining principal will then be sent to Lutherans For Life. (Note: it’s likely that this amount will be less than the original $25,000, since part of the principal will be used to pay income.) Of course, no one can predict the future when it comes to fiscal policy or interest rates. All things being equal, however, CGA payments alone as illustrated, even without the future gift, would be very positive. Even if interest rates edge up a bit higher, they will still fare comparably.
Second, let’s look at the other option—a Charitable Remainder Unitrust (CRT) with the same basic variables: husband and wife both age 69 using $25,000 in cash. Here are the benefits they will receive:
Payment Rate: 5% of fair market value or $1,250 (Please note: This payment rate percentage would be reduced by slightly over 1% because of a fee that will be charged by the managing foundation. In addition, legal fees may be incurred in setting up a CRT. Lastly, annual dollars received may be reduced in future years if principal needs to be tapped to help make payments.)
Charitable Deduction: $9,863
Because of the charitable deduction, a CRT may be considered the more attractive of the two options for people under 70 years of age, particularly for those with higher incomes (e.g., if they are still working).
Of course, as with a CGA, charitable intent must be an integral factor in establishing a trust. In that regard, a CRT also has a distinct advantage over a Charitable Annuity. With a CRT, you can likewise leave the principal to a charity or ministry upon your death(s). However, after that time you can also elect to have payments continue for five, ten, or even up to 20 years to (a) loved one(s) such as children, grandchildren, etc. Once this time is completed, the principal remaining would then go to your chosen ministry.
So, the time may be right to consider either a CGA or CRT, both for financial and charitable reasons. In the case of the latter, this may also allow you to do something you’ve always wanted to do but haven’t—leave a portion of your assets to a charity, a ministry, or specifically to Lutherans For Life before you pass on.
If you would like to know more about Charitable Annuities or Trusts, and possibly have a personalized illustration run for you (with no obligation and in complete confidence), feel free to contact me at 888.364.LIFE (5433) or email@example.com.
May God bless you today and always!
Note: this article is not intended as legal or financial advice. For assistance with specific issues, you are encouraged to seek the advice of an attorney or other professional advisor.