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What are my Choices in Income Gifts?
- A charitable gift annuity is the simplest; in return for your gift, we contract to pay you and/or another beneficiary fixed income for life. The income rates and the charitable deduction tend to be higher with a gift annuity than with other life-income gifts. There is also an attractive reduction in the taxation of annuity payments. This gift plan is most appropriate if you are risk-averse in your investing and if long-term fixed income is an appropriate strategy for you.
- A deferred gift annuity delays the inauguration of income payments to the beneficiaries. In return for this delay, the deferred annuity increases both the income rate and the charitable deduction above those of an annuity starting income payments immediately. If you are currently in high-earnings years, looking for tax deductions and new sources of retirement income, a deferred annuity with income set to start when you turn 65 may fit your needs well.
- Gift annuities are contracts between Children's Hospital and you, with payments made as an obligation of our organization. One other gift returning fixed income, the charitable remainder annuity trust, is an individually managed trust instead of a contract. The annuity trust offers you more flexibility, although its management costs often produce a lower income rate than a gift annuity could pay and require a larger initial gift.
- The annuity trust does have several advantages. It can pay income to multiple beneficiaries, while the gift annuity is limited to two individuals. It can pay income for a term of years (up to 20) while a gift annuity can only pay for life. Under certain circumstances an annuity trust can pay all tax-free income, especially if it was funded with tax-free securities.
- The most flexible life-income gift also pays you variable income. The charitable remainder unitrust pays beneficiaries a fixed percentage of the value of the principal, which is revalued annually. Income in excess of the unitrust amount is reinvested, so that the unitrust's income rate can be applied against an increasing corpus over time. The unitrust can pay multiple beneficiaries, and can pay income for lifetime or a term of years. Like the annuity trust, the unitrust is individually managed, and requires a larger gift to make the management feasible.
- A special feature of the unitrust is its ability to grow its principal over time, then reinvest for income, with no capital gains cost. This feature, explained in the text, allows you to build up a fund for later needs, such as tuition for children and grandchildren.
