In philanthropy and financial planning, the concept of charitable gift annuities (CGA) has garnered increasing attention. As a trusted resource in wealth management and estate planning, Legacy Private Trust Company seeks to demystify this trend and offer insights into how it might fit into your philanthropic strategy.
Understanding Charitable Gift Annuities
What is a Charitable Gift Annuity?
A Charitable Gift Annuity (CGA) is a financial tool combining philanthropy with financial planning. Essentially, it allows an individual to make a significant charitable donation while securing a guaranteed income stream for their lifetime. Here’s how it works: A donor gives a substantial gift to a charity using cash, securities, or possibly other assets. In return, you become eligible to take a partial tax deduction for your donation, plus you receive a fixed stream of income for the rest of your life. The amount of this annuity depends on several factors, including the donor’s age and the current market conditions.
Why the Growing Popularity?
The growing interest in charitable gift annuities can largely be traced back to recent legislative changes, particularly the introduction of the SECURE Act 2.0. A transfer to a charitable gift annuity will qualify as a Required Minimum Distribution (RMD) from an Individual Retirement Account (IRA). This development has effectively merged charitable giving with retirement planning, enhancing the appeal of CGAs among donors.
The Nitty-Gritty of the SECURE Act 2.0
Delving deeper into the specifics of the SECURE Act 2.0, there is a lifetime transfer limit of $50,000 from an IRA to a CGA, a figure adjusted for inflation annually ($53,000 in 2024). Additionally, the act mandates that the payout rate for such annuities must be a minimum of 5%. This combination of philanthropy, financial security, and tax benefits under the new legislative framework is what’s driving the rising popularity of Charitable Gift Annuities.
Exploring Tax Implications and Strategies
Tax Considerations for IRA Gift Annuities
It’s crucial to understand the tax implications of charitable gift annuities, especially when funded through IRAs. Payouts from IRA-funded gift annuities are treated as ordinary income, which can have significant tax consequences. This makes it imperative for potential donors to consult with tax advisors to understand the full impact on their financial landscape.
Eligibility and Restrictions
Eligibility for this strategy is primarily geared toward those aged 70 ½ or older, aligning with traditional retirement and financial planning milestones. It’s also worth noting that if both spouses have IRAs, each can independently make a $50,000 (2024: $53,000) transfer to a CGA. Opting for a joint-life annuity, which continues payments until the death of both spouses, is possible but results in lower monthly payments.
Making an Informed Decision
Consultation is Key
Before committing to a CGA, engaging in thorough consultation with financial and tax advisors is crucial. Given the irreversible nature of these decisions, understanding all facets of this financial tool is essential for ensuring it aligns with your overall financial and philanthropic goals.
In summary, charitable gift annuities represent a unique convergence of philanthropy and financial planning. They offer a pathway to support cherished causes while ensuring a stable income stream. However, navigating the complexities of charitable gift annuities requires careful consideration and expert guidance. At Legacy Private Trust Company, we are committed to providing our clients with the insights and expertise needed to make informed decisions that reflect their values and financial objectives.
For those considering a charitable gift annuity or any other aspect of estate planning and wealth management, we invite you to connect with our team for personalized advice tailored to your unique situation. Together, we can explore how your philanthropic endeavors can seamlessly integrate into your overall financial plan.
If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or connect@lptrust.com.
This newsletter is provided for informational purposes only.
It is not intended as legal, accounting, or financial planning advice.
