Help For An Aging Family Member Using Charitable ToolsSubmitted by American Endowment Foundation on June 24th, 2019
By Johnne D. Syverson, Guest Columnist, Syverson Strege & Co
Have you ever had a client whose aging relative could use some financial assistance to help pay for their care, but did not feel good about dumping a large lump sum on them with no tax benefits in sight? Here is an idea that has helped a few of our clients in that situation.
Fred and Ann are recently retired business owners who you have told have more than enough wealth to see them through their own later years. Each year they enjoy supporting their favorite charities with annual gifts. Ann has an Aunt Martha (her mother’s sister) who is age 82 and is in an assisted living facility for which she had not planned financially. Fred and Ann would like to help Aunt Martha in some way, but are not sure how to do it tax efficiently.
As I put on my Chartered Advisor in Philanthropy hat, it came to me that a third party Charitable Gift Annuity (CGA) may be just the ticket for this situation. Fred and Ann could fund the CGA for Aunt Martha now with a portion of their surplus wealth. Aunt Martha would be the income beneficiary of the CGA for her life. At her passing the remainder would pass to Fred and Ann’s donor advised fund where they could make grants to their favorite charities to enhance their giving in their later years.
Here are the economics of this strategy:
Fred and Anne fund a single life Charitable Gift Annuity for Aunt Martha with $100,000 cash. At Martha’s age 82, the CGA will provide her with a life income of $7,200 per year ($600/month), which will help her meet some of her monthly expense needs for her care in assisted living.
Fred and Anne will enjoy a charitable income tax deduction in the first year totaling $54,450.
Aunt Martha will enjoy receiving her $7,200 per year, of which $5,486 will come to her tax free for the first seven years until she reaches her life expectancy, with the balance taxed to her as ordinary income. If Fred and Anne predecease Aunt Martha, her $7,200 of CGA payments will continue coming to her for her lifetime, providing her additional security.
Assuming Aunt Martha passes away at her normal life expectancy in seven years, the anticipated value of the remainder in the CGA will be about $50,000. If she dies sooner or later, the value will be more or less than that amount. Whenever her death occurs, the remainder in the CGA will dump into Fred and Anne’s donor advised fund where they can continue their practice of generosity by making substantial annual grants to their favorite charities even though they are in their retirement years. If they have predeceased Aunt Martha, then their children will have the joy of giving to the family’s favorite causes as a legacy from their parents.
The case study presented above is hypothetical in nature, for illustrative purposes only and should not be considered investment advice. The information is intended to illustrate services available and is not intended to be a testimonial or endorsement. Clients should review with their investment advisor their own investment objectives and financial needs as well as the terms, conditions and risks involved with specific services.
Johnne D.Syverson, CFP®, AEP®, CAP® is a Partner at Syverson Strege & Co. He is a member of the AEF Council of Advisors.
We at American Endowment Foundation look forward to discussing your needs and interests in greater detail. Contact or call us at 1-888-660-4508 and let us discuss how donor advised funds can play a role in charitable planning.