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Gifts That Pay You Income

There are several kinds of gift agreements that can have the effect of helping you financially and also helping The Cedars.

Charitable Gift Annuity

The most common and most easily established of these “split interest” gifts is the charitable gift annuity. The CGA is technically a contract between you and The Cedars in which you make a gift now, and The Cedars pays you a specified income for the rest of your life. Key features include:

  • You get a sizeable current year tax deduction for the present value of the future gift that will come to The Cedars.
  • Your periodic income payments will be a guaranteed set amount based on your age at the time the annuity is established.
  • A major portion of your periodic income payments will be tax-free for a number of years, again determined by your age at the time the annuity is established.
  • Your initial payment to establish the annuity is held by the Cedars to invest and to draw upon to cover your income payments for as long as you live. The remaining balance then becomes a gift to the Cedars. If you outlive the balance, The Cedars is obligated to pay you income anyway.

It takes only a few minutes for us to create an illustration of what the terms of an annuity would look like for you – payout rate, tax deduction, exclusion ratio (i.e., the tax-free portion of your income payments). In order to create an illustration for you, we need to know:

  • Face amount with which you want to establish the annuity (we normally prefer $10,000 or above).
  • Whether you want to fund the annuity with cash or with securities. If you are using securities to take advantage of the appreciated property rule, we will also need your basis in the securities.
  • The frequency with which you want to receive payments – annual or semi-annual.
  • Whether it is to be single individual annuity or joint.
  • The birthdate(s) of the person(s) who will receive the annuity payments.

If you e-mail the above information to us at advancement@thecedars.org, we can easily prepare an illustration and e-mail it back to you as a PDF file. If you prefer to meet with us to ask questions about variations and nuances not outlined above, we’re glad to do that. E-mail or call us at (620) 241-0919.

Charitable Remainder Trust

There are two kinds of charitable remainder trusts – Charitable Remainder Unitrust (CRUT) and Charitable Remainder Annuity Trust (CRAT). These instruments are normally used for larger sized gifts than the average charitable gift annuity described in the section above. While both pay income like the CGA does, there are some differences:

  • The CRUT and the CRAT require the drafting of a trust instrument that establishes the trust entity within which the assets will be managed and from which payments will be made.
  • Unlike the CGA, payments last only as long as the trust continues to maintain a balance. By contrast, the CGA constitutes a claim on Cedars assets even if your initial gift payment has been exhausted.
  • In the CRUT version, payments are recalculated every year based on the current market value of the assets supporting them. Hence, if the trust balance is growing, your payments will grow accordingly.

Charitable Lead Trust

A lead trust can be either a unitrust or an annuity trust version, similar to remainder trusts. However, a lead trust is the opposite of a remainder trust in the sense that it pays income to the charity for a period of years (usually around 17 or so) then distributes the remaining trust balance back to the family. It is a fairly rare set of circumstances that makes the lead trust attractive, but if you have a closely held business or an appreciating asset from which current income is not critical but you want to preserve the asset for the future with certain tax advantages attached, this is an option that could be very useful to you.