HOW TO ESTABLISH A LIFE INCOME GIFT

Family obligations and the need to provide for retirement, coupled with the high cost of living, make it difficult for many people to consider substantial charitable gifts now. But there is a way to have the satisfaction of making a meaningful lifetime gift without sacrifice. In fact, you can get current income tax and financial benefits. It is called a life income gift. You irrevocably transfer some assets to the American Red Cross Rhode Island Chapter now and, in return, you (and a survivor, if you wish) receive income for life. As a result, the assets are used to carry out our mission.

By making a life income gift to the American Red Cross Rhode Island Chapter, you will receive the following benefits, in addition to the pleasure of knowing the good work your gift will do. The benefits include:

- A charitable deduction in the year you make the gift for the present value of our right

   to eventually receive the assets.

- Your effective yield is increased by substantial income tax savings.

- Income can be taxed more favorably in some plans.

- Your probate and estate administration costs may be reduced.

SOME EXAMPLES OF LIFE INCOME PLANS

Charitable Gift Annuity

In exchange for your gift of cash or marketable securities to the American Red Cross, we agree to pay you (and a survivor or other beneficiary) a fixed amount annually for your lifetime. The transfer is part gift and part purchase of an annuity. The rate of return is attractive and the payments are guaranteed for life.

The American Red Cross nationally uses the charitable gift annuity rates recommended by the American Council on Gift Annuities. The following are rates for a single-life charitable gift annuity:

For example, Miss Anderson, age 75, transfers $10,000 to the American Red Cross Rhode Island Chapter for a gift annuity. She will receive a guaranteed annual income of $790 ($10,000 x 7.9% -- the annuity rate for her age).

The rates are different for an annuity for two lives. The rates for two lives are less than rates for one life because the period of payment may be longer. The following chart shows some sample rates based on two lives:

For example, Mr. Edwards is 75 and his wife is 70. They transfer $20,000 to the American Red Cross for a gift annuity and receive $1,360 annually for life ($20,000 x 6.8% -- the annuity rate for their combined ages). The full guaranteed payments continue for the survivor's life.

If you wish, you may defer charitable gift annuity. You can make the gift now, and the Red Cross will pay you (and another beneficiary, if you wish) life income starting at any date you specify. This is a great option if you are concerned about retirement income. Also, you receive the income tax deduction in the year you make the gift. The amount you receive each year depends on the amount transferred, your age now, and your age when the payments are to start.

For example, Miss Baker, age 50, transfers $10,000 to the American Red Cross of Rhode Island for a deferred gift annuity with payments to start at age 70. Her rate of return will be 21.4 percent, and she will receive $2,140 per year for life ($10,000 x 21.4%).

Charitable Remainder Trust

This life income plan is created by transferring assets to a trust that pays you (and another beneficiary, if you wish) income for life. At the end of the trust, the remaining trust assets are transferred to the American Red Cross Rhode Island Chapter. A bank or trusted advisor can serve as trustee.

The type of charitable remainder trust you choose determines your annual payments:

- Charitable Remainder Annuity Trust
The charitable remainder annuity trust pays you a fixed dollar amount annually for life. The fixed payments are determined by the payout percentage selected at the beginning of the trust. You can claim a charitable deduction on your income tax form the year that you create the trust. The payments you receive are taxed as ordinary income, and in some cases as capital gain or tax-free return of principal.

For example: Mrs. Edwards irrevocably transfers $100,000 to create a charitable remainder annuity trust that will provide her with life income payments. Included in the trust agreement is the stated payout percentage of 7. She will receive $7,000 annually for her life ($100,000 x 7%). If income earned by the trust exceeds the fixed payment of $7,000, the excess is reinvested.
 

- Charitable Remainder Unitrust
The charitable remainder unitrust pays you a fixed percentage of the fair market value of the trust assets, as revalued each year. Like the annuity trust, you can claim a charitable deduction on your income tax form the year that you create the trust. The payments you receive are taxed as ordinary income, and in some cases as capital gain or tax-free return of principal.

For example, Mr. Edwards irrevocably transfers $100,000 to create a charitable remainder unitrust that will provide him with life income payments. The trust agreement provides that he will receive 6 percent of the fair market value of the assets each year. The first year he receives $6,000 (100,000 x 6%). One year later the trust assets are valued at $120,000, so he is paid $7,200 ($120,000 x 6%). If the trust assets are worth $110,000 at the beginning of the next year, he will receive $6,600 ($110,000 x 6%). And so on each year. If trust income exceeds the stated payout percentage, the excess is added to the unitrust assets and reinvested.

 

For more information, please contact Diane Holden, Chief Development Officer, at [email protected] or call 401-831-7700 x106.

Many individuals today have large qualified retirement plans such as an IRA, 401(k), or Keogh plan. These assets have been growing tax-free for years. Once the owner begins to receive payments from the qualified plans, the distributions are taxed. The plans are also included in the owner's taxable estate. A retirement plan may be an excellent source of funds for making a gift to the American Red Cross Rhode Island Chapter.

One way to make a gift of your retirement plan is to create a charitable remainder trust through your will. It works like this: Your IRA assets will be transferred to a charitable remainder trust. There is no tax due because the charitable remainder trust is a tax-exempt entity. The trust will provide life income to the beneficiary (for example, your child) with an eventual gift to the American Red Cross Rhode Island Chapter. The beneficiary will pay income tax on the distributions from the trust. Your estate will receive an estate tax charitable deduction for the value of the Red Cross's right to eventually receive the trust assets.

For more information, please contact Diane Holden, Chief Development Officer, at [email protected] or call 401-831-7700 x106.