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You Can Address Charitable Goals and Care for Loved Ones at the Same Time

Posted January 2019

Sometimes our personal and charitable goals appear to be in conflict. It can feel like there may not be enough resources to do all you would like to do. But careful and creative charitable planning can often allow you to do more than you otherwise might have thought possible.

Consider this example of a typical philanthropic individual—let’s call her “Anne”—who is a faithful supporter of ours and who also provides important financial assistance to a loved one.

Example: Anne owns a thriving small business, and her income regularly puts her in the highest federal income-tax bracket. She has a disabled sister, Beth, 70, who is unable to work, and Anne supplements Beth’s limited income with monthly stipends of $750. Anne also wishes she could make a major gift to our endowment.

After meeting with our representatives and her advisors, Anne decides to create a charitable remainder annuity trust that will first help Beth and then make a gift to us. She funds the trust with stock worth $200,000 that she bought five years ago for $100,000.

The trust will pay Beth 5% of its original value each year for life in quarterly payments of $2,500. In her low tax bracket, Beth will still net as much as she had been receiving from Anne. When Beth dies, all remaining trust assets will go to our endowment.

The stock Anne chooses to fund the trust pays no dividends, so there will be no decrease in Anne’s personal cash flow. In fact, her cash flow will actually go up by $750 per month since she is no longer making the gifts to Beth out of her personal income.

In Anne’s 37% federal income-tax bracket, the gift also generates a charitable deduction of more than $93,000—saving her more than $34,000 in federal income tax. Moreover, she does not have to recognize and pay capital-gain tax on approximately $100,000 of appreciation in the value of the stock—a benefit that could save almost $24,000 compared to selling the stock and using the proceeds to fund the trust.

If the trust is able to generate a 6% total annual net return and Beth lives her normal life expectancy, there will be more than $250,000 remaining to go to our endowment. Anne’s charitable and personal goals are fulfilled; contact us today to discuss how we may help you fulfill your goals.

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