If you are a reader of Consumer Reports or the Nature Conservancy magazines, you are probably familiar with Charitable Gift Annuities (“CGAs”). Both magazines have plenty of advertisements for these giving instruments in their publications. The Community Foundation also offers and administers CGAs locally. For a donor who likes conservative investments but has experienced income decline due to low-interest rates, the CGA is a great way to guarantee a higher level of income for life and – benefit your favorite charity.
Under the 2019 SECURE Act, there is a new reason to consider a Charitable Gift Annuity because of new legislation that has changed the “stretch” IRA rules.
The new rules allow IRA beneficiaries to extend the IRA payout through the balance of their lives, versus the current regulations requiring that IRA distributions to your heirs must be completed in 10 years.
Talented financial advisors and charitable gift planners recognized a new opportunity for donors with this legislation that has led to the development of the Testamentary CGA (T-CGA). As with all CGA’s, guaranteed payouts are fixed and are typically 6% or higher.
The difference is in how it is funded.
Using the new strategy, the CGA is funded by the IRA account holder, using the IRA. The donor names the charity as the beneficiary on the IRA account, and names an older family member (sibling, parent, etc.) as the annuitant, and a charity to receive CGA residuum. Doing so locks in the income stream for the family member and provides them with the assurance of income for life even if the donor predeceases them. Seen as a substitute for a “stretch IRA,” this can be put in place with minimal up-front planning and expense compared to doing a testamentary remainder trust.
I think Charitable Gift Annuities, in general, are an underappreciated instrument.
Typically individuals who set up a CGA will have a significant current tax deduction, double or triple their annual income, and the knowledge that the remainder of their gift will go to their favorite charity. It’s the trifecta of WIN, WIN, WIN. Community Foundation donors have never had regrets about setting up a CGA. If you would like to learn more about CGA’s or even talk about the more complex but brief opportunity to establish a T-CGA, please call me. The Community Foundation makes complicated charitable gift planning easy and efficient. We can help you establish a charitable planned gift to receive current income and tax benefits before the end of this year.
You can learn more about the benefits of a Charitable Gift Annuity on our website, nevadafund.org.
I thank and acknowledge Charitable Solutions LLC, one of the companies that research and share information about new and timely gift planning strategies for sharing the information about T-CGA’s with the Community Foundation.
Chris Askin, President/CEO
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