We in planned giving are committed to advising you of solid charitable planning opportunities. As noted in the past year, outright contributions of appreciated securities, held long-term, have helped donors limit their tax bills as they locked in their gains or diversified/rebalanced their portfolios. These strategies may be even more important today.
Charitable Gift Annuities (CGAs) funded with appreciated securities held long-term are especially attractive in keeping the fair market value of the contributed securities intact and increasing the donor’s income.
Because CGAs provide fixed payments for life, some donors look upon them as part of their “fixed-income” portfolio. CGA payments are higher than current market rates of interest since they are based upon the age of the annuitant(s) at the time of the contribution. The Investment Committee commingles CGAs and invests them in a 70-30 mix of equities and fixed-income investments.
CGA payments are taxed favorably to the donor, especially in this time of historically low interest rates. Only a small percentage of the annuity is taxed as ordinary income, with the remainder reported as a tax-free return of principal or taxed at capital gains rates, depending on the cost basis of the contributed securities.
Other donors have found a contribution of cash to a CGA attractive because of the tax-free return of principal. Recently, a member of the 50th Reunion Class contributed $100,000 to a CGA, which will provide him with annual distributions of $5,400, nearly $4,000 of which is tax-free.
Hamilton makes a number of resources available to you, including the following: