Good year-end planning must be focused beyond the current year. It should be designed to position you for best results in the future as well. Give careful consideration to moves that will help you reach your long-term objectives while cutting your tax bill this year. Because interest rates are low, many people are looking for an attractive and tax-advantaged source of reliable income. If you have charitable objectives, there are many strategies that can work well for you,including a charitable gift annuity.
Example:
Jim and Beth, both 72, have a $100,000 CD coming due. If they renew the CD, they will earn only 3%. They would like to provide for Hamilton, but they need to continue to receive annual income.
They decide to transfer the proceeds of their CD to the College in exchange for a charitable gift annuity (CGA) that will pay 6% during their lifetimes. The CGA will pay them $6,000 each year and $3,732 will be tax free.
The gift also generates a current income tax deduction in the amount of $29,784. In their 28% tax bracket, this saves them $8,340. Jim and Nancy's CGA helps to reduce their current tax liability, creates a source of increased cash flow and ultimately establishes a permanent endowment at Hamilton College.
Another charitable giving option — a unitrust — allows multiple contributions that provide the donor with income tax deductions and tax savings while deferring most or all of the income distributions until retirement.
Example:
David, age 50, wants to increase his retirement security and find a way to make a contribution to Hamilton, however, he has made all the tax deductible contributions he can make to traditional retirement plans. David decides to begin contributing $20,000 each year to a charitable unitrust, until he retires in 15 years.
The trust grows by 8% annually until it starts distributing 5% of its value to David each year when he reaches the age of 65. David's first distribution from the trust will be $27,150. Provided the trust continues to realize an 8% annual return, the distributions to David will grow to more than $46,000 per year. In addition, he will be eligible for income tax deductions of approximately $108,800. Distributions from the unitrust that represent qualifying dividends and capital gains will be taxed at only 15%.
Please advise the College if you have included Hamilton in your estate plan or completed a planned gift so you can be honored and recognized as a Joel Bristol Associate.
