|Charitable Gift Annuity
A charitable gift annuity is a contract between you and American Farmland Trust (AFT). You contribute cash, stock or real estate in return for the guarantee of a fixed payment every year for life. AFT bases the amount of the annuity payment on rates determined by the American Council on Gift Annuities. These rates take into consideration the value of the cash, stock or real estate used to fund the CGA and the age of the donor at the time the first payment is made. (The minimum gift level to establish a charitable gift annuity is $5000.)
Generally speaking, the older the donor is at the time the first annuity payment is issued, the higher the amount of the payment. Once we arrive at a figure, the donor will receive the same amount every year for life. These payments are backed in full by the assets of AFT, thereby providing the donor with a sure and steady stream of income. Additionally, donors who establish a charitable gift annuity with AFT generally receive a charitable tax deduction and a reduction in capital gains taxes on any appreciated assets used to fund the gift.
Although a charitable gift annuity is commonly established to provide income during your lifetime (usually the lifetime of the donor his/herself), it is possible to name a second beneficiary—generally your spouse or a member of your immediate family. After the death of the donor, the annuity payments will transfer to this second beneficiary for the remainder of his or her life. You should be aware that naming a second beneficiary will lower the amount of the annuity and the charitable tax deduction, as illustrated by the chart below:
*These calculations are based on economic conditions determined by the IRS as of January, 2003.
|Charitable Gift Annuity
||One Beneficiary (Donor)
||72 and 68
|Annual Annuity Payment
|Charitable Tax Deduction
Using Appreciated Securities to Establish Your Charitable Gift Annuity
To maximize your tax savings, you can choose to fund your charitable gift annuity with long-term appreciated securities, rather than cash. To qualify as a long-term security, you must have held the stocks or mutual funds for at least a year and a day at the time of donation. Appreciation refers simply to the growth in the asset's value since the time you acquired it. By using highly appreciated securities rather than cash to fund a charitable gift annuity, you can realize substantial savings on the capital gains tax you would normally pay if you were to sell these securities yourself.
Case Scenario: A 65 year-old donor purchased 300 shares of stock at $50 per share (total value of $15,000). The value of the stock has since risen to $150 per share (total value of $45,000). If the donor sold those shares today, she would likely owe capital gains tax on the entire difference between the purchase price of the stock and its current value—$30,000 worth of appreciation. At the current capital gains tax rate of 20 percent, she would pay $6,000 in taxes to sell this stock herself.
If the same donor instead used these shares to fund a charitable gift annuity with AFT, capital gains taxes would be assessed only on the difference between the original purchase price of the stock and the anticipated total of the donor's yearly payments. In the above scenario, only $19,961 would be subjected to capital gains taxes, for a total tax payment of $3,992. Moreover, this payment would not be due immediately, but would be spread out over a period of almost twenty years. This amounts to less than $200 in capital gains taxes per year. Better still, a portion of this donor's yearly payments would come to her tax free!
No matter the type of bequest you choose to make, the assets will be removed from your estate for the purposes of taxation.
Our planned giving office is here to help you determine the type of gift that's right for you. You can contact AFT's Vice President of Development and External Affairs, Susan Sink at 202-378-1206 or email@example.com to make American Farmland Trust a part of your lasting legacy.