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The Grand Traverse Regional Community Foundation has recently inaugurated a gift annuity program in
conjunction with the non-profit in the area who maintain an account at the Foundation. What does this mean?
Basically, it permits small non-profits to offer gift annuities to constituents at law management fees, without
any paperwork, risk or investment responsibility. The Foundation has entered into an agreement with TIAA-
CREF to manage gift annuity assets, do all the paperwork, including mailing checks and tax statements, with
the agreement that any residual values would be shared 80% to the sponsoring non-profit and 20% the
Foundation.
This is a golden opportunity for local non-profits to offer gift annuities to their supporters, with the opportunity
for the annuitant to support his or her favorite non-profit or religious organization and receive both a lifetime
cash flow and a tax deduction.
What is a Gift Annuity? Most of you have probably received solicitations from your college or university to
purchase a gift annuity with cash or appreciated securities. The donor receives a guaranteed income for life
with any remainder passing to the charity. The annual payout is based on the donor’s age. The donor can
convert appreciated securities or cash to increased cash flow, while at the same time benefiting a favorite
charity.
As icing on the cake, the donor can avoid capital gain tax on any appreciation in securities used to purchase
the annuity, and get a charitable deduction on her income tax return. A gift annuity works similar to a CRT
(Charitable Remainder Trust), except that the annuity is guaranteed by the non-profit organization (in this case
the Foundation), while a CRT might run out of money if investment performance is bad.
Who Buys Gift Annuities? Purchasers of gift annuities are typically older individuals who become concerned
about their financial security, want an assured lifetime income, and want a favorite charity to receive some
benefit at their death. A typical candidate for gift annuity would be a single individual or married couple in their
seventies with no children. The gift annuity can be set up for one life or two lives. Purchasers are pleased that
they will receive a guaranteed cash flow for their lifetimes with monthly or quarterly checks. They can have the
satisfaction of supporting their favorite charity at the same time with a current income tax charitable deduction..
Why is the Community Foundation’s Program a Good One? The bottom line is that the Foundation’s alliance
with TIAA-CREF permits small non-profits to offer the same opportunity to supporters that large colleges and
universities, and other large charities such as Salvation Army, do.
TIAA-CREF is managing the assets, making the distributions and preparing the tax statements for a modest
fee of 0.5% per annum, far lower than many other comparable programs. The lower fee increases the
potential return to the charity, while at the same time, harnessing the resources of one of the nationally
prominent financial managers. (TIAA-CREF manages the Michigan Educational Savings Program - Section
529 Plan, as well as the Section 529 Plans for several other states).
Why is this of interest to you? You may have occasion to advise clients who fit the profile of gift annuity
purchasers. Now they don’t have to go outside the local area for find competitive gift annuities. The typical gift
annuity arranges from $10,000 to $100,000. The Foundation is advised that many times an annuitant, once
having purchased a gift annuity, is a candidate for further gift annuities as they get comfortable with the
concept and enjoy the cash flow. What a good use for CD monies that are currently earning 2-3%! What a
good use for inherited or other low basis stocks, where the dividend yield is 2% or less!
Publicity. You will be hearing and reading more about the Community Foundations gift annuity program in
coming months. It is the low cost, low risk alternative to a Charitable Remainder Trust, that appeals for the
most part to clients who may not want to incur the expense of a CRT or worry about any administrative
responsibilities. A gift annuity is clean, simple and easy.
The Foundation, through TRAA-CREF can offer print outs showing the tax effect of the annuity on an annual
basis. This is relatively simple when the annuity is purchased for cash, but gets considerably more
complicated when appreciated securities are used. If you have questions, call Jeanne Snow at (231) 935-
4066.
Caveat. At the outset, the Foundation’s gift annuities must be purchased with cash or securities. The program
may be expanded in the future to include real estate, but at this point, real estate is not being accepted
because of its non-liquid character.
If charitable gifting and/or gift annuities have a place in your client’s estate or income tax planning, please do
not hesitate to contact Jim Modrall at (231) 941-9660.
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
| WEALTH CONSERVATION: PROFESSIONAL ALERT Brandt, Fisher, Alward & Roy, P.C. |
| March 2002 GIFT ANNUITIES - An opportunity for both clients and non-profits by James R. Modrall III, J.D., C.P.A. |
| If you would like to receive future editions of the monthly Wealth Conservation Newsletter directly to your e-mail account, please e-mail our office using the following link: Estate Planning Newsletter |
| Brandt, Fisher, Alward & Roy, P.C. Attorneys at Law |