Oblates of St. Francis de Sales

New DeSales World Newsletter - Summer Edition

"How to Give Your Nest Egg to Charity and Get a Return"

Taken from the Wall Street Journal Online: By Jonathan Clements

It's the gift that keeps on giving.

I often suggest retirees stash maybe 25% of their nest egg in an immediate-fixed annuity, thereby locking up a generous stream of lifetime income. But if you're charitably inclined, an even better alternative might be a charitable-gift annuity from your favorite religious organization or other nonprofit group.

True, you would get more income by purchasing a regular annuity from an insurance company. A gift annuity, however offers some intriguing tax advantages and it may prove more appealing, especially if your big worry is investing in an annuity and dying soon after.

Buying Income: When you sign up for a gift annuity, you hand over a wad of money to a nonprofit group, in return for which you get both an immediate tax deduction and also a fixed amount of income every year for the rest of your life. For instance, if you are age 65 and you donated $100,000 for a charitable-gift annuity from the University of Illinois Foundation, you would get a $32,253 tax deduction for your charitable gift, plus garnering $6,000 a year in income.

By contrast, if you purchased an immediate-fixed annuity from an insurance company, you wouldn't get a tax deduction, but you would collect far more income. According to webannuities.com, if you are age 65 and you invested $100,000 in a regular immediate-fixed annuity from an insurer, you might $8,028 a year if you are a man and $7,560 if you are a woman.

Still, in addition to helping your favorite cause, gift annuities do offer some notable financial benefits. Like most nonprofit groups, the University of Illinois Foundation typically follows the payout rates set by the American Council on Gift Annuities in Indianapolis. The ACGA rates are the same for both men and women, which means they are a better deal for women, because women tend to live longer, notes Jeffrey Brown, a finance professor at the University of Illinois at Urbana-Champaign.

The immediate income-tax deduction can also seem pretty compelling, especially with the gradual withering away of the estate tax. If you won't be subject to estate taxes, you are better off making charitable gifts before your death, so you can take the deduction on your income-tax return, says David Foster, a financial planner in Cincinnati.

As an added tax bonus, you can fund a gift annuity with appreciated property, such as stock or a mutual fund with big embedded capital gains. You won't, however, avoid the entire capital-gains tax bill.

With any immediate annuity, part of your income each year is taxed as ordinary income and part usually represents a tax-free return of principal. What happens if you fund a gift annuity with appreciate property? A portion of your tax-free income will, instead, be taxed as capital gains.

Retirees often balk at buying immediate annuities that pay lifetime income. The reason: If they plunk down a hunk of cash for an annuity and die soon after, their heirs won't get any money back, unless the annuity comes with some sort of guarantee.

With charitable-gift annuities, you run the same risk. Nonetheless, the risk seems a little more palatable. "If your death occurs prematurely, the windfall goes to the charity, rather than to the insurance company, "explains Clinton Schroeder, chair of the ACGA's board of directors. Still if this dilemma worries you, you could opt out of the gift annuity, donating part of what would have gone in the gift annuity, and using the rest to purchase an immediate annuity from an insurer.

Visit our Ways to Give section to learn more about other Planned Giving vehicles, and how they help you partner with us. If you'd like to receive a FREE NO OBLIGATION Gift Annuity Illustration from the Oblates of St. Francis de Sales, simply click here and complete the Annuity Request form.