What Are the Most Common Problems in Gift Planning? Part III

Last time, we looked at credit card gifts…and some of the problems with these gifts.

There’s one more problem, a common problem, with credit card gifts, which arises when the donor wants to establish a gift annuity with a credit card.

Let’s take the case of Doris, aged 79, who wants to set up a $10,000 gift annuity with a credit card. Doris calls Charity’s PGO, makes an agreement over the phone (later to be reduced to writing), and promptly charges her card $10,000 in favor of Charity.

The problem is, Charity isn’t going to receive $10,000 for the annuity. (I know, a lot of charities eat the fee, which I don’t like.) Charity’s going to receive $10,000 less a 2.5% fee. (I know, not all CC companies charge the same fee…we’ll use 2.5% just for discussion purposes.)

This means Charity is only going to receive $9,750…a bad deal for Charity, in my opinion.

The question is: How much should Doris charge to her card so that Charity receives a net amount of  $10,000?

This is a first-year algebra problem. In algebra, the unknown amount is always X. That’s the amount Doris should charge.

A 15-year-old freshman algebra student writes:

X – .025X = $10,000

The student writes this equation because [a] she knows to convert the fee from a percentage to a decimal number, and [b] she knows that this equation produces a figure for X that allows Charity to net $10,000.

I’ll give the answer for X next time (meanwhile, solve for X yourself), and then we’ll look at some other problem assets.

by Jon Tidd, Esq

Posted in blog.

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