What Are the Most Common Problems in Gift Planning? Part III | Sharpe Group
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Posted November 1st, 2019

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