Senior Partners - 1

Give and You Shall Receive

Elizabeth Williams
By  Elizabeth Williams , DTN Special Correspondent
Certified financial planner Walt Mozdzer recommends charitable gift annuities for retirees over 62 who are tired of low returns on bank CDs. (DTN photo by Elizabeth Williams)

WEST DES MOINES, Iowa (DTN) -- Here's a question you don't often hear: "How many of you have ever received money back from the charity you donate to?"

When Walt Mozdzer asks that at workshops on charitable donations, no hands go up. But Mozdzer, a certified financial planner at Syverson Strege and Company in West Des Moines, Iowa, explains that's what happens when you set up a charitable gift annuity.

The concept is relatively simple. You donate assets or cash now to your charity; they pay you an income stream on that donation and the charitable organization gets to keep the remainder of the gift after you die.

It's a tool that best fits retired benefactors over 62 who want to leave a legacy to their colleges, local hospitals, religious organizations or even medical research like the American Heart Association or American Cancer Society. Cash, stock or even non-cash assets like grain can be used. With the recent farmland boom, many more of those potential benefactors could be retired farmers and land owners.

What does the charity get out of the arrangement? An irrevocable cash gift sometime in the future. And unless you live a lot longer than the mortality tables predict, the charitable organization winds up with about half of the money after you die. If, however, the money you donated runs out before you die, then the charitable organization is still obligated to pay you your income, using its own funds as necessary.

One extra incentive is that the donor benefits from getting a higher income stream in monthly, quarterly or annual payments than he could get from a bank's certificate of deposit or a Treasury bill. Currently, a single 62-year-old could get a 5% payout rate guaranteed for his lifetime. The rate is mainly determined by your age. The older you are, the higher payout percentage. The downside is the applicable rate is locked in for the life of the annuity which is until you die. So, if interest rates rocket higher, you're stuck with your guaranteed rate. That's why advisers recommend charitable gift annuities as part of a balanced retirement program.

Many retired landowners who are receiving high cash rents look at bank CDs with yields less than 2% and are frustrated at how low they are. "You can double or triple that number with a charitable gift annuity and be philanthropic, too," noted Mozdzer.

In addition to a higher rate than other guaranteed returns in the market right now, there are several tax advantages.

If you donate grain or low-basis corporate stock, the income tax or capital gains tax on those assets can be deferred. The gain is prorated over the life expectancy of the donor. Some clients use stock that came through their parents' estate 20 years ago and has an extremely low cost basis, Mozdzer said.

Plus, you get an immediate tax deduction for your gift to the charity (although not the entire face amount because you do receive income from the annuity) and a portion of the income earned each year could be tax-free.

Blanche Koenig retired to Fort Myers, Fla., but her roots were in Iowa. She is setting up a charitable gift annuity (CGA) for Cornell College in Mt. Vernon, Iowa. "I mainly wanted to give something to Cornell in memory of my husband, Gerald, who graduated from Cornell, as did our two daughters," explained Koenig. "You can spend money on a tombstone in a cemetery to remember your loved one, but tombstones don't help many people. I thought the gift to Cornell would be a very nice way to have someone remembered."

Koenig, who is 81 years old, was familiar with various ways to donate to charities. "Most non-profits have brochures and seminars that explain various options. But my adviser thought this would be a win-win for both me and for Cornell. I get a tax advantage and a quarterly income, at a higher rate than other current investments and the payments will continue during my lifetime. Also, Cornell College gets a (future) donation, in memory of my husband."

The process of setting up a CGA is quite straight forward, explained Ed Beckwith, partner with BakerHostetler in Washington, DC and secretary of the board of the National 4-H Council. He also teaches Advanced Estate Planning and Charitable Organizations and Planned Giving at the Georgetown University Law Center. "Short of a direct gift, a CGA is one of the simplest ways a person can support a charitable activity in his or her community, such as a state 4-H program. And the side benefit is the donor secures a reliable, regular rate of return on the contribution. A charitable gift annuity is simple, straightforward and rarely requires any professional assistance to complete," explained Beckwith.

You can fill out an application within minutes and as soon as the application is processed, the annuity may begin. However, the charity you want to donate to must have a CGA program in place. Most large charitable organizations, such as land grant universities and major charities, do have Charitable Gift Annuity programs, noted Beckwith.

"Generally, the charitable gift annuity works best for donations in the $15,000 to $100,000 range," Mozdzer advised. A smaller donation isn't worth setting up an annuity and a larger donation might be better served through a charitable remainder trust which requires professional assistance to set up, but it offers the donor more flexibility.

For example, if an 83-year-old donated $25,000 to a charitable organization via a charitable gift annuity, the annuity rate would be 7.4% paid quarterly, with an immediate charitable tax deduction of $12,760. The annual annuity amount would be $1,850, of which $1,569 is tax-free and $281 is ordinary income. The donor who set the charitable gift annuity up on February 5, 2013 would receive his first pro-rated quarterly payment on March 31, 2013.

Economics may favor CGAs, but the true benefit may be more intangible, said Sue McEntee, of the West Des Moines-based Charitable Giving Resource Center. "You get to enjoy the benefits of making the gift while you're alive."

More than 900 nonprofits offer charitable gift annuities. Go to the American Council of Gift Annuities for a complete list at

To figure your own rate of return and tax benefits, go to the website:…

Editor's Note: DTN's on-going Senior Partners series examines the financial, legal and emotional hurdles families face as they transition farm ownership from the senior to junior partners. To read other features in the package go to DTN/The Progressive Farmer In-Depth at…


Elizabeth Williams