Recently, I had a discussion with an experienced gift planning officer who had a trustee wishing to set up a gift annuity for a 58-year-old family member.
I believe age 58 is way too young for a gift annuity. The annuity will run forever, and the benefit to the issuing organization will be zilch.
But that’s not the only way to think about the situation.
First, the trustee may know this, may want to provide for a needy family member and may have in his back pocket a far larger reward for the charity of which he’s trustee. In this case, the charity is well-advised to grin and bear it.
Second, there may be a way to accommodate the trustee and still reap a good benefit for the charity. What I’m about to describe can work, but doesn’t always work.
The trustee sets up two gift plans.
No. 1 is a CRAT for a fixed term of years. Let’s say 12 years, which will run until the 58-year-old is age 70.
No. 2 is a 12-year deferred payment gift annuity, which will begin making payments at the point in time when the CRAT terminates.
The only catch is that the trustee needs to deploy about $150,000 for this plan to work—$100,000 for the CRAT and $50,000 for the DGA. But $100,000 alone in a one-life gift annuity results in no benefit to the charity.
Something to think about.
By Jon Tidd
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