Over the years charitable life-income plans (e.g. charitable gift annuities and charitable remainder trusts) have grown in popularity as an effective means of making significant future gifts to our organization while retaining the income from the contributed asset or assets for the life of the grantor and/or a designated income beneficiary. Such a gift provides several important benefits:
- A significant future gift to support our work
- An income-tax deduction for the present value of the charitable remainder interest
- Avoidance of capital-gain tax on the initial transfer of appreciated assets to the life-income plan
- Potential transfer-tax (gift and estate) savings
- Avoidance of probate administrative costs
With the passage of time, some beneficiaries come to realize that because of a change in circumstances, they no longer need the income provided by their life-income plan. In fact many of these beneficiaries sign over and return to us the checks they receive from their plans. When they do return such amounts, they must first include the amount of the check in their gross income and take a corresponding charitable deduction on their income-tax return. The result is a wash for tax purposes, a neutral transaction.
An alternative that may be worth considering by the income beneficiary is to make a gift of his or her income interest in the life-income plan, thus terminating the gift arrangement. As a result:
- We receive the assets in the life-income plan and are able to accelerate achieving the purpose for which the plan was established
- The beneficiary is entitled to a significant income deduction for the present value of the income stream that he or she has relinquished without having to declare any of it as income.
Calculating the deduction for this type of gift varies with the life-income plan that is involved. We will be happy to provide you with a personal illustration tailored to your particular situation.