Leave A Legacy With Deferred Charitable Gift Annuities

Deferred Charitable Gift Annuity may be a great retirement planning tool for charitably-minded baby boomers, who may already be maximizing contributions to their IRAs.

A Charitable Gift Annuity (CGA) is a contract with a non-profit. The agreement states that, in exchange for a contribution, the non-profit guarantees an annual payment of a set amount to an individual or a couple for their lifetime. The remainder of the gift is used by the charity for their own purposes. A Deferred CGA is where the contribution is made now and the annuity payment is deferred to a later time.

Here’s an example to illustrate how this works and the benefits. Let’s say we have a married couple, Bob, and Fran, who are now both 56 and in the prime earning years of their careers. They have IRAs and are making the maximum contribution annually, but they’d still like to put some more away into a retirement account.

They could always use another tax deduction, and they’d like to create a legacy gift to benefit their church. Bob and Fran create a Deferred CGA contract with a local community foundation. They are planning on contributing $4,200 annually for six years. That’s a total contribution of $25,200. Bob and Fran will defer their annuity payment until they reach their full retirement age for Social Security, age 67. Over the six years, they’re making the contribution, Bob and Fran receive a partial tax deduction for their contribution of $5,392. This saves them $1,779 in taxes since they’re in a 33% tax bracket.

At age 67, they start to get an annual annuity of $1,512 based on a 6% annuity contract (that’s 6% of the contribution amount), which they’ll keep receiving for the rest of their lives. This amount doesn’t change from year to year but will remain at $1,512. In addition, more than half of this amount ($858) will be income that’s tax-free. A similar taxable investment would need to earn 8.2% to have the same return. It’s estimated over their lifetimes that Bob and Fran will receive $42,741.

The foundation investment committee and professional advisers will invest the contributions and track the investment returns and annuity payments in a fund specifically set up for this annuity. Estimating a conservative average annual return of 5%, the fund would have $54,547 remaining in the fund after their lifetimes, to create an endowment to benefit their church that would pay out approximately $2,700 annually to their church.

The Deferred Charitable Gift Annuity allowed Bob and Fran to provide an impactful legacy gift to their church. They also received reliable income for themselves in their retirement and a tax deduction during their peak earning years. This example shows why this is a powerful retirement planning tool for those who want to leave a legacy and support their favorite charity.

Reference: Lee’s Summit Journal (March 28, 2017) “Retirement planning power tool”


Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on pinterest
Share on Pinterest

Leave a comment


We have a LOT more where that came from!

We hate spam too. We will never share or sell your information.

Call Now ButtonCall Us Now https://jsfiddle.net/7h5246b8/

Request a free consultation

We hate spam too. We will never share or sell your information.

We've been putting together as many resources as possible so that we can continue to help:

  • If you’re a current client with a signing appointment or a prospective client with a consultation and would prefer that meeting take place in your own home, we can accomplish that with a little bit of pre-planning on our part and with the addition of a laptop, smartphone, tablet or other computer in your home to facilitate this virtual meeting. For those of you that need to sign legal documents, that too can be accomplished with the use of a webcam (FaceTime etc.), so that we can witness and electronically notarize all of your important legal documents.
  • We launched the rollout of our on-demand webinar early so that new clients and our allied professionals can view the important component parts of ‘an estate plan that works’ at their convenience.  That is available on our website.
  • Live video workshops will be produced as quickly as possible and certainly ahead of our previous schedule; we will keep you posted as these events become available. Given the ‘boutique’ nature of the firm, we rarely have more than ten people in our office including team members at any one time. During this period of ‘social distancing,’ we promise to have no more than 8 people at any time.   This allows us to comply with the Governor’s directive to limit in-person gatherings.
  • The best way to communicate with us is still by phone during regular office hours of 8:30 to 5:00, Monday through Friday, or, you can email any of our team members (that is, their first name followed by @zarembalaw.com).  We will respond to these emails as quickly as possible.
  • Please continue to follow the directives of our local, state, and federal agencies. For your health and in consideration of our team who is assisting you, if you’ve scheduled an office appointment or planned to drop off paperwork and are experiencing a fever, dry cough, or shortness of breath, please contact your primary care doctor for guidance and then our office to reschedule.

Thank you, Walt and the Zaremba Team

Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.