A Gift Planning Problem… and its Solution

Dora, aged 80, wants to provide her disabled niece, Fredda, with a fixed life income, maybe an income that will increase by a certain amount if Fredda lives to a certain age.

Fredda is aged 50 and has a shortened projected lifespan because of her disability. Nonetheless, Fredda’s doctor says Fredda could live to age 90 or older, just as she could live to age 60.

Dora has been advised by her lawyer to set up a charitable remainder annuity trust for Fredda’s life. Dora likes this idea. Except, it doesn’t take into account that Fredda may live a long time; and inflation, even low inflation, may wear away the financial value of the CRAT payout over that time.

What to do? Something Dora’s lawyer, who is unfamiliar with gift annuities, hasn’t considered is for Dora to:

  • set up a term-of-years CRAT for Fredda, say a 10-year CRAT;
  • and to couple the CRAT with a deferred payment gift annuity that will kick in at the end of the CRAT term.

This plan can be tailored to meet Dora’s objectives. For example, when the CRAT ends and the DGA commences, there could be a bump-up in the payments going to Fredda.

If Dora is tax conscious, she’ll likely appreciate that this plan can provide her better income tax benefits than a single CRAT for Fredda’s life.

Furthermore, if yours is the charity Dora wants to benefit, your organization possibly stands to fare much better financially under this plan than under a single CRAT for Fredda’s life.

For details, check with your SHARPE newkirk consultant.

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