Planning Options for Your Stage in Life

Marcus is about to make retirement official by selling his business interest in an advertising firm for $800,000. Marcus is single, and his children are grown and financially established. At age 68, his top concern is the risk of outliving his assets. He recognizes that the business buyout presents a unique opportunity to create a predictable retirement income while fulfilling his desire to support Indiana University.

Marcus learned that with a charitable remainder trust (CRT), he could make a gift and begin receiving income from that gift now or later. In simpler terms, a CRT is a way to give to charity and get income in return. With either arrangement, he would qualify for a current income tax deduction. Marcus also learned that he could choose how the trust income was determined—a fixed payment amount each year (the charitable remainder annuity trust) or a payment that fluctuates annually based on the value of the trust assets (the charitable remainder unitrust). In either case, when his payments end, the remaining trust assets would become available to IU to further the university’s charitable mission.

Marcus uses $300,000 to set up a charitable remainder annuity trust that begins making fixed payments immediately. His gift qualifies for an income tax deduction that provides welcome relief for his upcoming tax bill. Marcus is pleased that he can make a significant philanthropic impact while providing for his retirement.

Bob and Mary (both 70 and recently retired) are concerned about a volatile stock they purchased years ago for $10,000 that is now worth $50,000. They would rather not own such a high-risk asset at this point in their lives, but they don’t want to sell it and pay the $6,000 (15%) capital gains tax.

Their advisor suggests donating the stock and establishing a charitable gift annuity (CGA). In this scenario, Bob and Mary make a gift to IU, and in return, the university agrees to make payments to both of them for life.

This arrangement—part gift and part annuity—provides them with several advantages:

• They minimize their capital gains tax—the gift portion is not taxable, and the tax on the annuity portion is spread out over their life expectancies.
• The gift portion qualifies for an income tax deduction.
• They will have fixed annuity income each year for as long as either of them lives.

The CGA is an attractive way to rebalance an investment portfolio, convert an appreciated asset into an income-producing gift, and qualify for a significant tax deduction. It’s even more attractive with the current high rates.