One of the most popular forms of life income arrangement, a gift annuity offers many advantages.
- The payout rates for gift annuities are generally quite attractive to people in their 70s, 80s and 90s. The rates typically range from 5-9%. If a person, or couple, is currently experiencing a low return on their CDs, money market accounts, treasury notes, or bond funds, a gift annuity can be a nice alternative. The payout rates are determined by a person’s age, and once established are fixed for life.
- The donor receives a generous income tax deduction for the year in which they create a gift annuity. Often the tax deduction is 20-50% of the amount that they placed into the annuity.
- Depending upon how the gift annuity is funded, the donor can enjoy a significant portion of the income they receive from a gift annuity on a tax-free basis.
There are many forms of gift annuities. Some offer an immediate payout option, while others allow the donor to fund the agreement and get an income tax deduction now, but delay the beginning of payments until some point in the future of their choosing.
Call Oregon Tech if you are interested to learn more about gift annuities. A confidential illustration can be prepared specifically for you which will reveal what your payout rate would be, how large your income tax deduction amount would be, and what portion of your payments would be tax-free. There is no cost or obligation to inquire.
Charitable Remainder Trusts (CRTs) can be one of the most powerful planning tools available as people do retirement and estate planning.
CRTs afford the donor potentially five favorable tax outcomes by virtue of one financial transaction. They are: 1) capital gain tax avoidance 2) income tax deduction, 3) tax-free compounding 4) income payments taxed favorably, and 5) estate tax elimination (for those people with large estates).
- Capital Gain Tax Avoidance allows people to place an asset(s) in a CRT and avoid paying initial capital gain tax in the process. For example, if you paid $100,000 for some property that is now worth $500,000 you can sell the property through a CRT without having to report the $400,000 of capital gain as income.
- An Income Tax Deduction is available to those who create CRTs. If you live in Oregon, you are able to receive both a state and federal income tax deduction based upon a portion of the market value of the asset they place in a CRT.
- Tax-Free Compounding occurs on the asset(s) that is placed in a CRT. For example, if you place an appreciated piece of real estate in a CRT and then sell it, the proceeds are typically then invested in stocks and bonds. Any investment growth inside the CRT will occur tax-free for as long as the trust is in existence.
- Income Payments Taxed Favorably occurs as people receive their payments from a CRT. Often, if invested carefully, the person(s) receiving income from a CRT may receive portions of that income taxed at long-term capital gain rates. For many people, the long-term capital gain of 15% is less than their ordinary income tax bracket.
- Estate Tax Elimination can be accomplished for those with large estates. Effectively, the value of the asset placed in a CRT now comes out of the donor’s estate, thereby lowering the donor’s taxable estate. As an example, if an individual has an estate valued at $5,500,000, and she places a $500,000 asset in a CRT, the taxable value of her estate would be lowered to $5,000,000.
Finally, life insurance can sometimes be a viable part of a CRT plan. If the donor(s) want their loved ones to participate in the full value of their estate, then creating a life insurance trust with some of the CRT tax savings and additional cash flow can allow loved ones to “remain whole” as it relates to their inheritance.
For more information about including Oregon Tech in your future plans, please contact Tracy Ricketts.