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Feb 21, 2023 •404 likes •701 views

Juicing Up Your CGA Program in a Low Interest Rate Environment: Turning Lemons into Lemonade Marilyn B. Schaffer, CAP Joel Schaffer, CFP Director of Planned Giving Director of Gift Planning Lincoln Park Zoo University of Illinois Foundation

  1. Juicing Up Your CGA Program in a Low Interest Rate Environment: Turning Lemons into Lemonade Marilyn B. Schaffer, CAP Joel Schaffer, CFP Director of Planned Giving Director of Gift Planning Lincoln Park Zoo University of Illinois Foundation UIC Chicago, Illinois UIC Chicago, Illinois CHICAGO COUNCIL ON PLANNED GIVING ANNUAL SYMPOSIUM – MAY 25, 2017

  2. Agenda  Is a charitable gift annuity program right for your charity?  The challenge in the current interest rate environment  Case studies  Management issues  Gift annuity guidelines – protecting your charity CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 2

  3. Charitable gift annuities remain a popular giving vehicle For the donor: For the charity:  Easy to understand and set up  CGA contract is easy to understand and create  Provides a steady, guaranteed income stream  CGAs are easy to explain to donors and advisors  Typically provides some tax-free income  Appeal to donors  Can provide a charitable tax deduction  Can lead to other outright and planned gifts, including the ultimate gift  Opportunity to make a meaningful gift to charity CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 3

  4. Is a gift annuity program right for your charity? Do Good for Kids Charity Things to consider Established 2015  How long the charity has been in existence? Relief from Pain Charity  Assets owned by the charity. Established 2005  Staff to market, solicit and administer the program.  Donor base – how big is the donor pool and how many are age 60+?  Do you have an endowment?  Do you have an investment policy in place?  Have you obtained the necessary registration requirements for the states where you want to issue CGAs? CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 4

  5. The challenge in a low rate environment IRS Discount Rates  Extremely unattractive annuity rates 3 available for donors under age 70 2.5  Volatility of the markets 2  Can the charity earn enough to cover the payments 1.5  Viability of your gift annuity pool 1 0.5 0 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 5

  6. Cases studies Charitable Gift Annuities Quick review – Gift Annuity 101 Gift of property Donors Charitable The Weiner Dog Gift Annuity Charity Remainder to Weiner Dog Charity Income tax charitable deduction Fixed payments CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 6

  7. Case Studies Immediate pay gift annuities #1 Laddering annuities for maximum benefit Donors: Mr. and Mrs. Peter Cheng  First met in 2013, now age 75 and 72  Support a number of organizations, including the zoo.  Have given annually for many years, but very modest gifts  Have means, but do not see themselves as able to make a significant gift  Had established gift annuities with other organizations CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 7

  8. Laddering annuities for maximum benefit Year 1: Charitable Gift Annuities – funded with cash Gift Annuity #1 Gift Annuity #2 Gift Annuitant #3 Annuitant: Mr. Peter Cheng Annuitant: Mrs. Janet Cheng Annuitant: Mrs. Janet Cheng Annuitant Age: 72 Date of Gift: Nov 2013 Annuitant Age: 70 Annuitant Age: 71 Cash Donated: $10,000 Date of Gift: Dec 2014 Date of Gift: Jan 2016 Annuity Rate: 5.4% Cash Donated: $10,000 Cash Donated: $10,000 Annuity Rate: 5.1% Annuity Rate: 5.3% Charitable Deduction: $4,240 Charitable Deduction: $4,002 Charitable Deduction: $4,014 Annuity: $540 Tax-free Portion: $397 Annuity: $510 Annuity: $530 Ordinary Income: $142 Tax-free Portion: $377 Tax-free Portion $393 Ordinary Income: $132 Ordinary Income $136 CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 8

  9. Laddering annuities for maximum benefit Year 2: Charitable Gift Annuities – funded with cash Gift Annuity #1 Gift Annuity #2 Gift Annuitant #3 Annuitant: Mr. Peter Cheng Annuitant: Mrs. Janet Cheng Annuitant: Mrs. Janet Cheng Annuitant Age: 72 Annuitant Age: 70 Annuitant Age: 71 Date of Gift: Nov 2013 Date of Gift: Dec 2014 Date of Gift: Jan 2016 Cash Donated: $10,000 Cash Donated: $10,000 Cash Donated: $10,000 Annuity Rate: 5.4% Annuity Rate: 5.1% Annuity Rate: 5.3% Charitable Deduction: $4,240 Charitable Deduction: $4,002 Charitable Deduction: $4,014 Annuity: $540 Annuity: $510 Annuity: $530 Tax-free Portion: $397 Tax-free Portion: $377 Tax-free Portion $393 Ordinary Income: $142 Ordinary Income: $132 Ordinary Income $136 CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 9

  10. Laddering annuities for maximum benefit Year 3: Charitable Gift Annuities – funded with cash Gift Annuity #1 Gift Annuity #2 Gift Annuitant #3 Annuitant: Mr. Peter Cheng Annuitant: Mrs. Janet Cheng Annuitant: Mrs. Janet Cheng Annuitant Age: 72 Annuitant Age: 70 Annuitant Age: 71 Date of Gift: Nov 2013 Date of Gift: Dec 2014 Date of Gift: Jan 2016 Cash Donated: $10,000 Cash Donated: $10,000 Cash Donated: $10,000 Annuity Rate: 5.4% Annuity Rate: 5.1% Annuity Rate: 5.3% Charitable Deduction: $4,240 Charitable Deduction: $4,002 Charitable Deduction: $4,014 Annuity: $540 Annuity: $510 Annuity: $530 Tax-free Portion: $397 Tax-free Portion: $377 Tax-free Portion $393 Ordinary Income: $142 Ordinary Income: $132 Ordinary Income $136 CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 10

  11. UIC Case Studies Immediate pay gift annuities - continued # 2 Donor with significant growth stock portfolio, producing no income Donor: Mrs. Fancy Bumpkins  Widow, grown children all very well off  82 years old at the time of the gift  Connected with the University for over 20 years, husband was alumnus and former Trustee  Supported the University with large outright gifts over the years CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 11

  12. UIC Donor with significant growth stock portfolio, producing no income Gift Annuity – funded with stock Annuitant: Mrs. Fancy Bumpkins Annuitant Age: 82 Stock Donated $1,500,000 Cost Basis of Property $250,000 Annuity Rate: 7.2% Charitable Deduction $759,045 Annuity $108,000 Tax-free Portion $14,886 Capital Gain Income $74,430 Ordinary Income $18,684 CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 12

  13. Case Studies Immediate pay gift annuities - continued #3 Sometimes it pays to be older Donor: Mr. Philip Smith  Widowed, wife died in 2005  Supported the zoo for over 25 years – small gifts  Dedications after wife died  Concerned that the bequest he had planned for the zoo will be less than intended CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 13

  14. Sometimes it pays to be older Gift Annuity – funded with cash Annuitant: Mr. Philip Smith Annuitant Age: 87 Date of Gift: April 2016 Cash Donated: $300,000 Annuity Rate: 8.2% Charitable Deduction: $177,336 Annuity $24,600 Tax-free Portion $20,443 Ordinary Income $4,157 CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 14

  15. Cases studies Deferred Gift Annuities Quick review – Deferred Gift Annuity 101 Gift of property Donors Charitable The Smelly Cat Gift Annuity Charity Remainder to The Smelly Cat Charity Income tax charitable deduction Fixed payments - the payments will not begin until a specified date in the future CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 15

  16. UIC Case studies Deferred Gift Annuity #3 Sometimes it pays to wait Donor: Ms. Gretchen Goodtimes  60 year old, living in Minneapolis  Had attended the University, but never graduated  Family had attended the University  Had a career in pharmacy, planning her retirement  Widow, no children CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 16

  17. UIC Sometimes it pays to wait Deferred Gift Annuity – funded with cash Annuitant: Ms. Gretchen Goodtimes Annuitant Age: 60 Date of gift: Jan 2017 Age at Date of First Payment March 2027 Age at First Payment: 70 Cash Donated $50,000 Annuity Rate: 7% Charitable Deduction $22,723 Annuity $3,500 Tax-free Portion $1,715 Ordinary Income $1,785 CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 17

  18. Cases studies Flexible Gift Annuities Quick review – Flexible Gift Annuity 101 Gift of property Donors The Rescue Kayaks Charitable from Rivers Charity Gift Annuity Remainder to The Rescue Kayaks from Rivers Charity Income tax charitable deduction Fixed payments - donor initiates start of payments within a range of future dates CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 18

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