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How to Become a Philanthropist Using Annuities

William Clay TuckerWhen most people hear the term Philanthropy they picture the Gates, Buffets, Rockefellers and Carnegies of the world; or maybe the person with a wing of the local hospital or the business school of the college named for them. This is true of course, but it’s not the whole picture. Every time you leave a check in the collection plate at church or send that annual donation to the Cancer Society, Heart Association or your Alma mater, you too are a Philanthropist.

Most major charities and non-profits, even many larger churches have some level of Planned Giving programs. These range from the very sophisticated and robust to others that cover the very basic strategies like bequests by will, gifts of stock, Annual Giving Pledges, Charitable Remainder Trusts, and Charitable Gift Annuities.

Non-profits that offer Charitable Gift Annuities (CGAs) as a part of their Planned Giving program are encouraged to follow the guidelines set forth by the American Council on Gift Annuities. One of these guidelines is that whatever amount a donor would like to place into a CGA program is that one half of the amount designated should go directly to the charity and the other half be managed to pay an income to the donor for a specified number of years or the donor’s lifetime. For example: A donor gives $100,000 to a charity’s CGA program; 50k goes to the charity (and this is the amount the donor can deduct for tax purposes) the other 50k goes into an Annuity that pays out an income to the donor.  In some cases the charity manages the investment of these annuity funds and the payouts to the donor. In others, the charity turns the funds over to an insurance company to assume the risk of the investment and payout of the income.

Now let’s look at this on a more basic level:  I don’t attend a mega church that has a menu of Planned Giving options. My local animal shelter, the Mountain Conservancy, or the waterway conservation organizations that I support don’t have these options either. So let’s say that I’m a 70 year old of modest means with $200,000 in bank CDs or Treasury Bonds from which I’m drawing some income. We will assume for this illustration a 3% annual return on these (which is really much higher than what can be found on the investments currently) which would give me an annual income from these of $6,000.  I also feel strongly about supporting my church or another cause dear to me.

I can, with the help of my financial advisor, structure my own Charitable Gift Annuity. I take this $200k from CDs or Bonds and put $100k into a Single Premium Immediate Annuity (SPIA). At my current age of 70, this will pay me an income of $7,206 per year. I could even choose a SPIA that has an annual Cost of Living adjustment with annual payments beginning at $6,024 per year and increasing 2% annually throughout my lifetime. The remaining $100k I donate outright to my chosen charity. I am now receiving an equal or greater income from this $100k SPIA than I was getting from my $200k in CDs or Bonds and I am officially a major Philanthropist.

About the Author:

William Clay Tucker has been a financial advisor for 22 years. He specializes in the areas of Investment Management, Income Planning, Estate Planning, and Philanthropic Planning. For more information, please contact: 770-778-5242, www.thewoodvillegroupllc.com or wctucker@thewoodvillegroupllc.com.  Also, be sure to download his free brochure “Good Decisions – Getting The Most From Social Security” along with Case Studies and a video at: www.wtucker.sswise.com.

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