Charitable Gift Annuities Ease Inflationary Economies
Jesus devoted much of the Sermon on the Mount to a discussion about wealth and riches. In this lengthy text, Jesus advocated favoring heavenly treasures over earthly treasures. He gives three supporting reasons for his argument.
First, the world is an uncertain place (Matthew 6:19-20). Stuff will deteriorate if it is not stolen by thieves first.
Second, whatever we establish as our treasure will obsess our entire life (Matthew 6:21). Your life will orbit your treasure.
Third, provision for our needs has already been made (Matthew 6:25-32). While we work and are encouraged to work, our work is performed in trust, not anxious concern. So how did we end up so misguided?
To begin, we have become consumed by consumerism. Overconsumption results when we desire something beyond our reach. We reach because we feel incomplete, so in order to complete the void in our lives we reach for “shiny saviors” that will help us create the image and identity that we want but is not authentic.
Another reason is that we have failed to understand the core biblical teaching of stewardship, which is the acknowledgement of God’s ownership of all things. We are not owners, but rather are managers of the gifts and blessings that God has entrusted to us to serve the world.
In addition we have failed to prioritize our pursuit of the kingdom of God (Matthew 6:33). It has been said that “purity of heart is to will one thing.” But because we lack a divine center our need for security has led us to an insane attachment to things. If we do not seek the kingdom of God first we will not seek it at all. Seeking the kingdom first produces three core attitudes about wealth and riches: What I have is a gift from God; what I have is cared for by God; and what I have is available to others.
No matter what our earthly treasures may be, we have to be careful about holding them too tightly because they will weigh us down and then let us down.
Dan and Shannon were deeply invested in the ministry of their Church. They desired to make a gift to support the vision and mission of the church but had a challenge. As they looked toward retirement they discovered they would need additional income to achieve their retirement goal of maintaining their current lifestyle in light of rising inflation. The couple learned that they could provide a gift to the church and simultaneously receive a flow of additional income that was guaranteed for life. They chose to invest $200,000 in appreciated securities to fund a Charitable Gift Annuity (CGA). A CGA is an annuity contract between the donor and the charitable organization where the gift is invested by the charity and provides a fixed income for the donor that is guaranteed for life. Upon the death of the donor, the original investment becomes available to the charity to fund ministry. Dan and Shannon were able to receive a tax deduction for their gift and reduced capital gains taxes. They were also able to remove the taxable asset from their estate. They will now receive the additional income they desired and ultimately make a testamentary gift to their Church.
Jesus challenged us to prefer eternal treasure that lasts forever. One of the ways we can meet his challenge is to make a significant testamentary gift that will continue our legacy of generosity long after we are in heaven. We can be generous and sacrificial while still meeting our own basic needs.
You have an opportunity to do the same thing. Depending on your personal needs and circumstances, you can prioritize generosity as a part of your financial planning. There are many giving vehicles available that can help you reduce income taxes, reduce or eliminate capital gains taxes and estate taxes. Instead of leaving a legacy to the government through taxes, you can choose to leave a legacy by storing up treasures in heaven.
We’d love to visit with you and show you how.
David Johnson, age 90, desired to move assets out of his estate and transfer them to his daughter Margo, age 60, and granddaughter Katie, age 30. At the same time, he wanted to enjoy a stable cash flow for his lifetime. David held stock worth $10 million, with a zero basis. He was surprised to learn that he could face capital gains taxes of more than $3 million if he were to sell the stock.
David's advisor told him of a creative way to transfer his wealth while avoiding capital gains taxes. He could put the stock in a Pooled Income Fund (PIF), naming himself, his daughter, Margo, and his granddaughter, Katie, as the income beneficiaries. David would receive an income tax deduction of $3.58 million, which can be carried forward over the next five years, saving him $1.79 million in income taxes. He chose not to reserve a right to revoke the PIF interests passing to Margo and Katie in his will, which completes the gift and triggers a gift tax of $1.74 million. David also incurred a generation-skipping transfer tax of $849,720 on the gift to Katie.
Given Margo & Katie's remaining life expectancies of 48+ years, the present value of the annual payments to them is over $9 million.
David may decide not to name himself as an income beneficiary for two reasons. First, if David is removed from the calculations, the math is essentially the same. Second, if David decides to retain income for his life, any increase in the assets of the PIF prior to his death will generate additional estate and generation-skipping taxes.
By transferring his stock to a PIF, David has moved $10 million out of his taxable estate at a net tax cost of ZERO (income tax savings, less gift and GST taxes), he gives an asset worth at least $9 million to his heirs, AND he avoids potential capital gains tax of $3.1 million.
Note the total return PIF is not limited to earned income distributions. All dividends, interest, rents, royalties, and short-term capital gain are paid out. A portion of the net realized long-term capital gains may also be distributed. By using a PIF to sell appreciated stock, David makes a substantial charitable contribution to his church, avoids capital gains taxes and future estate taxes, and transfers a significant legacy to the next two generations while ensuring a steady and dependable income stream for the rest of his life.
The desire to transfer your wealth to your children and grandchildren is natural and normal. But your desire to leave a charitable gift to your church is supernatural! It’s supernatural in the sense that you can impact lives beyond the limited boundaries of bloodlines in a way that is not limited by generations or geography.
Your church recognizes your natural and supernatural desires and is equipped to provide you with the expertise you need to make both of these desires become reality. Through wise planning you can create additional income, leave an inheritance to your children, reduce your tax liability, and leave a charitable gift to your church to carry its mission and vision into the future.
Your financial wealth, regardless of size, can be servant to each desire God has placed in your heart. Like Abraham, you have been called to leave a legacy for the cause of Christ and the advancement of his Kingdom. You have been blessed so that you can be a blessing!
