| The Flexible
Gift Annuity: Lower Taxes Now, Income When You Want It  Fred
Johnson, 70 years old, owns $100,000 in appreciated stock that he has accumulated over a
number of years. He estimates that he paid
$20,000 for his holding.
Because of recent market volatility, he would like to dispose of it, but he does not want
to pay capital gains taxes on his $80,000 gain. An
advisor has suggested that he use it to make a charitable gift.
Fred
currently receives a comfortable income and doesn’t need more. In fact, he would like his gift to generate a
charitable deduction to help offset high income taxes.
However, he also wants his gift to provide a source of future income if he
should need it.
After consulting with Mines’ planned
giving office and his advisors, Fred decides to establish a gift plan known as a flexible
gift annuity. Here’s how it works:
In 2006, Fred donates the stock immediately to establish the gift annuity. His donation locks in the value of his gift and
eliminates his market risk. It also entitles
him to an immediate charitable deduction of $56,974* that he can apply against his current
income. If Fred cannot claim his entire
charitable deduction in the year of gift, he may carry any unused amount forward for as
many as five additional tax years.
His annuity agreement gives him the option of activating the annuity within a ten-year
period beginning in 2011 and ending in 2021. The
longer he waits to begin receiving payments, the greater his annual payment will be. Once his payments begin, they will be fixed and
will continue for the rest of his life.
| If
Fred chooses to begin payments in: |
His
annual payment will be: |
| 2011 |
$9,000 |
| 2012 |
$9,500 |
| 2013 |
$10,300 |
| 2014 |
$11,100 |
| 2015 |
$12,000 |
| 2016 |
$12,900 |
| 2017 |
$14,000 |
| 2018 |
$15,100 |
| 2019 |
$16,400 |
| 2020 |
$18,000 |
| 2021 |
$19,500 |
If
Fred elects to begin receiving annuity payments in 2011, he will receive fixed payments of
$9,000 per year for the rest of his life. If
he waits until 2016, he will receive $12,900 per year.
If he waits until 2021, he will receive $19,500 per year.
In addition, nearly 55% of Fred's potential capital gain will
never be taxed. The remainder will be spread out over his life expectancy once he
begins to receive payments.
Assuming
that Fred will elect to begin receiving payments in 2016, we can summarize the gift with
the following diagram: |
