Deferred Gift Annuities:
They Can Help a Charity AND Your Family
Mike Breedlove, CLU, ChFC
David B. Mandell, Esq.
A deferred gift annuity is a simple contract between you and a charitable organization. In exchange for your gift, the charity agrees to pay a set dollar amount to an individual (“annuitant”), beginning on the date in the future that you specify in the agreement. Once payments begin, they will continue for the rest of the lifetime of the annuitant.
You decide who will receive the annuity payments from your gift, and when they will start. Up to two annuitants can be selected. Usually, the payments are made to the donor (you) or the donor and spouse.
Unlike an ordinary gift annuity, deferred annuity payments do not begin immediately. This gives your gift a chance to grow and permits the charity to offer you higher rates once payments begin. You also receive a current year charitable income tax deduction for a portion of your gift. And, when you start receiving payments, a portion of each payment is tax-exempt. For many people in their 40's and 50's, the deferred annuity offers a way to increase retirement savings over and above the contribution limits to IRAs and retirement plans. Not only are the rates extremely competitive in today's market, the retirement payments are guaranteed for life!
Case Study: Mike Uses a Deferred Gift Annuity
Mike is 50, and wants to benefit Lighthouse for Christ while at the same time building his retirement nest egg. He gives $10,000 to the Lighthouse for Christ for a gift annuity, which will begin payments to him when he turns 65. The annuity rate on this gift is 15.3%. This means that when Mike turns 65, he will begin receiving annual payments of $1,530. These payments will continue for the remainder of his life. About a third (30%) of his $10,000 gift is tax deductible the year he makes it. He also gets a tax break when he starts receiving payments since, unlike IRA and other retirement plan payments, a portion of each payment is excluded from income.
Many of our clients would be satisfied if they could get a 5-6% return on their IRA balances. In many cases, these balances are actually eroding, forcing people to reconsider the age at which they will be able to retire. In our view, a significant benefit of the deferred gift annuity is that it adds an element of security to retirement planning while helping Lighthouse for Christ, too.
David B. Mandell is an attorney and author of the book WEALTH PROTECTION: Build & Preserve Your Financial Fortress. Mike Breedlove is an Accredited Estate Planner and a member of the Lighthouse for Christ Board of Directors. For a FREE audiotape on this and other strategies, please call 800-554-7233.