Gifts that Pay Income
Charitable Gift Annuity
A gift annuity is a simple agreement between you and The Kentucky Center. In exchange for your gift of cash or securities, The Center will pay you (and another person, if you choose) a fixed amount each year for life. Income beneficiaries must be 65 years of age and the minimum gift annuity is $10,000.
The charitable gift annuity is a great way to make a gift to The Kentucky Center and receive payments for life that can supplement your retirement income.
You can also create an annuity to benefit a loved one:
- To provide for a spouse.
- To help a child.
- To provide financial assistance to aging parents.
The American Council on Gift Annuities makes the following recommendations regarding gift annuity rates:
|AGE ||RATE |
|65 ||4.7% |
|70 ||5.1% |
|75 ||5.8% |
|80 ||6.8% |
|85 ||7.8% |
|90+ ||9.0% |
Features of a Charitable Gift Annuity
- Fixed payments which never vary no matter what changes occur in the stock market or the economy in general.
- A charitable income tax deduction for a portion of your gift.
- Payments which are part tax-free return of principal and can be made quarterly, semi-annually or annually.
- Support for The Kentucky Center.
James, age 75, owns $10,000 in appreciated GE stock he has held for many years. He is concerned about market volatility and would like to make a gift of these securities to The Kentucky Center. However, he needs income from the stock, which produces a dividend. He decides to contribute the stock in exchange for a charitable gift annuity. He will receive:
- Fixed payments of $580 (5.8%) each year for life.
- An immediate income tax deduction of $4,503.
- Partially tax-free payments for his life expectancy.
- The satisfaction of a meaningful gift to The Kentucky Center.
Deferred Gift Annuity
The deferred payment gift annuity is often called the charitable version of the IRA.
In return for your gift of cash, securities or other assets, a deferred gift annuity pays income for life to you, and if you wish, another individual. It is similar to a Charitable Gift Annuity except the beneficary's income payments are deferred to at least one year after your gift – an attractive option if you wish to supplement your retirement income. The longer you defer, the higher your income and your charitable tax deduction.
Annuity payments are determined by three things:
- Age of the beneficiary at the time of the agreement.
- Age of the beneficiary when payments begin.
- Length of deferral (the longer the deferral, the higher the rate).
Rose, age 55, enjoys a very successful career. Each year she contributes the maximum allowed to her IRA. She would like to supplement the income she will receive upon retirement while also providing a significant gift to The Kentucky Center. By establishing a $25,000 deferred payment gift annuity with payments beginning at age 65, she will receive:
- An immediate income tax deduction of $8,615.
- Annual payments of $1,600 (6.4%) starting at age 65.
- A portion of each payment is tax-free return of principal during her expected lifetime.
- The satisfaction of making a gift to The Kentucky Center.
Charitable Remainder Trust
You irrevocably transfer assets to a trust administered to generate annual income to you or beneficiaries you choose. After all income rights have ended what remains is transferred to The Kentucky Center for your designated purposes.
The unitrust is a trust that pays a variable amount each year. A minimum of 5% is applied to the fair market value of the trust at the time the trust is created. The trustee values the trust on the same day each year to determine the beneficiary’s income the next year.
Benefits of a remainder trust:
- You select the income beneficiaries.
- You choose the beneficiary's payment rate and the payment schedule – annual, semi-annual or quarterly.
- You decide how long the income will be paid – for life or a period of time up to 20 years.
- You select the property, such as real estate, to fund the trust.
- You receive an immediate charitable income tax deduction for a portion of the value of the gift.
Plus, the unitrust offers an additional advantage:
- The unitrust can serve as an excellent hedge against inflation.
- If the unitrust’s market value increases, your annual payment grows.
Evelyn, age 70, plans to downsize and move into a retirement village. Her home makes up a large part of her estate and she doesn’t intend to keep it. She wants to make a gift to The Kentucky Center but needs additional income. Since her home is in good and marketable condition she contributes it to a charitable remainder trust.
Here’s how Evelyn turns her home into an income stream and a wonderful gift to The Kentucky Center:
The trustee of the trust sells the house, worth $100,000, and reinvests the proceeds in liquid assets.
The first year, Evelyn receives $5,000 income from the trust at a 5% rate. She also receives a charitable income tax deduction of $52,327.
Each year after, Evelyn continues to receive income in the amount of 5% of the value of the trust.
After Evelyn’s death, the trust principal will benefit The Kentucky Center in an area of Evelyn’s choice.
For more information about life income gifts, please email Jennifer Webb, or call at (502) 566-5159.