The Gift of Giving

Support an important cause and earn benefits for you and your family

by Alyssa Quintero on November 1, 2007 - 9:14am

QUEST Vol. 14, No. 6

Of all the gifts to charity that you plan to make this holiday season, how many will give you money back in return?

Read on to learn about one form of gift planning, available year-round, that can enable you to “do well by doing good.”

Charitable partners

A charitable gift to a nonprofit organization such as MDA has multiple benefits. It’s tax-deductible and, in MDA’s case, supports lifesaving research and services to help people with any of the more than 40 neuromuscular diseases.

But gift planning isn’t only about making a one-time or annual donation, or leaving a bequest in a will. A charitable gift annuity is an option that returns lifetime income to you, your spouse or other individuals. In other words, you can support a worthwhile cause while enhancing your family’s financial well-being.

An annuity pays a lifetime income (starting at age 65) with fixed annual payments, and creates immediate and future tax savings.

At the same time, a gift annuity gives an organization like MDA long-term financial strength to benefit the families it serves.

Here’s how it works:

  • An annuity can be established with as little as $10,000, using cash or securities.
  • Donors can claim a charitable tax deduction for the year in which they make the gift.
  • The charitable organization pays a specified amount to one or two beneficiaries for life.
  • Annuitants must be at least 65 when payments begin.
  • Payments are made quarterly, semiannually or annually.
  • A portion of the income payment remains tax-free.
  • When all income beneficiaries are gone, the remaining principal passes to the charitable organization.

For example, here’s one possible scenario:

Ryan, 67, and Melanie, 65, have $100,000 invested in money market accounts that pay them less than 3 percent per year, roughly $3,000. They have an adult son with limb-girdle muscular dystrophy and want to both make a gift to MDA and increase the family’s annual income. They give $100,000 to MDA through a charitable gift annuity.

Immediately, they receive an annual income of $5,700, of which $2,713.20 is tax-free. The benefits: The annuity almost doubled their annual investment income and provided an immediate federal income tax deduction of approximately $34,218, based on their $100,000 gift.

In 2005, Michael and Eileen Hartley of Columbia, S.C., established a charitable gift annuity, and while they’re pleased with their quarterly income and tax-free benefits, they also had another important goal in mind.

“Our daughter, Michelle, has Friedreich’s ataxia, and we figured that the money would help with MDA’s research efforts, and it would play a role in helping other people,” Michael Hartley said. “It’s a good thing because it helps everyone all around.”

A gift deferred

If you’re not 65, a deferred charitable gift annuity may fit into your financial plan. When you defer the income payments, the annuity’s benefits multiply.

In a deferred gift annuity, you make a contribution now, and receive an immediate charitable tax deduction. But, you postpone the start of your income until a specified date, typically when one beneficiary turns 65.

The income rate of return is determined by two factors — your birthdate and the date when payments begin. Because payments are deferred, the rate usually is considerably higher than the rate for an immediate annuity.

For example, George, 50, makes a $50,000 gift to MDA via a deferred gift annuity. At 65, he’ll receive fixed annual payments of $6,400 (a 12.8 percent rate).

Right for you?

“There’s a general assumption that an individual must possess immense wealth to be a philanthropist, but that’s just not true,” said Mark Denzin, MDA’s vice president of planned giving and philanthropy. “All that’s needed is a strong desire to support a cause like MDA’s fight against muscular dystrophy.

“Gift planning isn’t about giving after you’re gone — it’s about designing a gift that fulfills your wishes now.”

Ed McMahon, an MDA Board member and spokesman for the gift planning campaign, emphasizes, “Let’s make sure there’ll be a future with promise — both for those close to us and for families that count on MDA.”

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