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Stock for a Gift Annuity: A Great Trade

The stock market seems to hit new highs every day, providing an opportunity for donors to cash in on their investment success, minimize taxes and possibly increase annual income.  How?  Just contribute shares you have owned more than one year for a charitable gift annuity.

Consider the case of George, a retiree who is thinking about selling some stock.  Unfortunately, George will owe significant capital gains tax when he sells.  But if he gives the stock to charity for a gift annuity, he can reduce capital gains taxes, receive annual payments between 4.7% and 9.5% (based on his age) and qualify for a sizable charitable deduction that may enable him to itemize on his income tax return.

In George’s case, let’s assume he is age 78 and bought the stock for $6,000 many years ago.  It’s now worth $20,000 and selling would cost him $2,100 in capital gains tax.  But look at the results if he gives the stock to us for a charitable gift annuity:

  • We will pay him $1,360 (6.8%) for life, no matter how long that may be;

  • He receives an income tax deduction of about $9,600;

  • George avoids tax on nearly half of his capital gain and the rest is reportable in small installments over his life expectancy;

  • A portion of George’s annual payments is tax-free for his life expectancy.

Most satisfying to George, however, is that his gift supports charity.

Creative Year-End Giving Ideas

As the end of 2018 approaches, many people who regularly support charity are planning their annual year-end gifts.  A gift at year’s end can be a source of both satisfaction and tax savings.  Of course, taxes are not the reason people give, but there are ways to give that take advantage of saving opportunities:

  • Those who have reached age 70½ know they’ll need to take annual distributions from IRAs – and pay income taxes – whether or not they need the funds.  It’s possible to avoid income tax by telling the custodian of the IRA to send a check directly to charity.  There is no income tax charitable deduction allowed, but a qualified charitable distribution (QCD) saves taxes anyway.  For example, Jenny must take distributions of $46,000 this year, which may push her from the 22% to the 24% income tax bracket.  She will lose more than $10,000 of her distributions to income tax.  Jenny could, instead, tell the IRA custodian to send a check for $10,000 to her favorite charity.  Not only will Jenny save about $2,200 in income tax, but she may also reduce her Medicare premiums by reducing her taxable income.  IRA owners can give up to $100,000 annually, but the tax savings from a QCD are greatest where the gift takes the place of part or all of the donor’s required minimum distributions for the year.

  • It’s estimated that only about 12% of taxpayers will itemize in 2018, due to an almost doubling of the standard deductions and a reduction in certain itemized expenses.  Gifts to charity remain one of the few ways taxpayers can exceed the standard deduction.  Sally and Dave, both over age 65, have a standard deduction of $26,600 in 2018.  They normally give about $7,500 annually to their favorite charities, but the couple’s only other itemized deduction – state and local taxes, which is limited to $10,000 – will not allow them to itemize this year.  They could, instead, bunch three years’ worth of gifts in late 2018, which would put them at $32,500, far exceeding their standard deduction.  By bunching gifts, donors may be able to itemize every second or third year.  And if Sally and Dave use appreciated stock held more than one year to make their gifts, they save again by avoiding the capital gains tax they would pay if they sold the shares.

  • Many people own life insurance policies that are no longer needed for family security or to cover possible estate taxes at death.  A policy can be given to charity and may generate an income tax charitable deduction.

  • It’s possible to retain payments for life from a gift of cash or appreciated securities through a charitable remainder trust or charitable gift annuity, while also generating a larger charitable deduction that may enable donors to itemize.  For example, Bill and Donna, ages 78 and 77, have $150,000 in appreciated stock that they had planned to leave to charity in their estate plan.  They know they will not be subject to estate tax, so they’ve decided to accelerate their gift to a charitable remainder unitrust that will make payments to them for their lives, while also allowing them to itemize.  If their unitrust pays them 5% of the annual value of the trust, they will receive $7,500 in the first year.  Their deduction will be more than $80,000, assuming quarterly payments.  They can make additional contributions to their trust in future years, increasing their annual payments and giving them income tax deductions.

  • Even donors who don’t itemize may find tax benefits by making their gifts using appreciated stock, which allows them to avoid the capital gains taxes they would owe if they sold the shares.

Six Ways Your Estate Plan Can Go Out of Date

Estate taxes have changed significantly in the past few years, now sheltering estates up to $11.18 million.  Higher estate tax credits mean only about 1,400 estates per year are subject to tax.  But many people have estate plans written a decade or more ago.  Without regular review and revision, outdated estate plans can create confusion and expense for heirs.  Here are six common events that should prompt you to review and revise your own plans:

  • People you named as beneficiaries of a will, living trust, life insurance, retirement plan or financial accounts have become disabled or passed away;

  • Changes in your family situation have occurred through marriage, divorce or the birth of children or grandchildren;

  • You have acquired new assets through purchases, gifts or inheritances – or significant changes have occurred in the value of your real estate and investments;

  • You sold or gave away assets mentioned in your will or living trust;

  • An executor or trustee has died, moved away or is otherwise unable to serve;

  • You have decided to make additional estate gifts, such as gifts for the charities you support.

It makes sense to review all your documents on a regular basis to see they are up to date and coordinated with your other plans.

The High Cost of Not Having a Will

“I don’t need a will; I’m not rich enough to own an estate.  Besides, I don’t want to pay a lot of legal fees.”

If this sound like you — or someone you know – it’s important to realize that anyone who has investments, savings, a home or personal possessions, retirement accounts or life insurance needs estate planning.  Not having an estate plan could result in considerable losses from probate costs, taxes, debts and estate expenses.

An estate planning attorney can recommend ways to reduce probate costs, including trimming the size of your probate estate so it qualifies for fast-track, low cost procedures.  With planning, an executor may agree to serve without a fee, and your will could provide for a waiver of any bond requirement.

Additionally, your advisors can estimate your estate settlement costs, including taxes, administration expenses and debts.  They can help you arrange for cash reserves, life insurance and liquid investments to pay for these expenses.  Doing so could avoid a forced sale of assets at fire sale prices to pay any outstanding bills.

Without a will, your estate will pass according to the inflexible rules of the state in which you live.  Family members could be left to determine how you wanted to distribute items of personal property.  Your estate might even pass to distant relatives you never knew.  And state rules don’t allow for gifts from your estate to friends or to the charities you’ve supported during your life.  Keep in mind that the gifts to charity can also be planned to reduce taxes during your life and thereafter.



St. Bonaventure Indian School is a private, Catholic school located at the southeastern edge of the Navajo Nation in Thoreau, NM. The school is one of the ministries of St. Bonaventure Indian Mission which serves the Diné of the area.

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25 Navarre Blvd W , Thoreau, NM 87323