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A Safe Harbor Amidst Financial Turbulence
Posted September 2008

Risk versus reward—the fundamental test by which any investment is measured. But given today’s uncertain economic outlook, it is an increasingly complicated choice.

At a time when stock market swings of hundreds of points in a day are becoming a routine occurrence, many investors are searching for safety, stability, and predictability. In this article, wants to introduce you to a charitable life-income plan that offers a safe harbor from the current financial turbulence and gives you the peace of mind you are seeking.

By incorporating this creative strategy into your own planning, risk is removed from the equation and only the rewards remain—both for you and for us. The benefits for you are impressive:

• Guaranteed life income—fixed and partially tax-free
• Valuable income-tax deductions
• Possible avoidance of capital-gain tax

benefits from your generosity designated for purposes you select.

Many of our friends have been surprised to learn that it is possible to make a gift to and receive a stream of income in the process. Even if you have been vaguely aware of the possibilities, you may never have examined in detail how such a charitable gift could address your own long-term financial needs. Better yet, current low-interest rates make these charitable planning strategies more appealing than ever.

The oldest and one of the most popular life-income gift arrangements is the charitable gift annuity. It provides the donor—or one or two beneficiaries—payments for life based on a fixed percentage of the amount of the gift.

The following chart shows the rates we are currently paying annuitants at selected ages. Remember, the rate in effect when you acquire your annuity never changes. It is guaranteed for life—and it is backed by our full financial strength.

Viewed in the light of current market conditions, these rates are very appealing. But there are other factors that enhance them even more.

You receive a deduction in the year you fund your annuity, and each year—for the duration of your life expectancy—a portion of each payment you receive is tax-free. These tax benefits effectively increase your yield, as the following example demonstrates.

Example: Mary J, 70, contributes $40,000 in exchange for a gift annuity that will pay her $2,240 annually. The gift produces an income-tax deduction of $15,952 that, in her 28% marginal income-tax bracket, saves her $4,467. Thus, her out-of-pocket cost for the annuity is $35,533 and the $2,440 annual payment to her is equivalent to more than a 6.8% return.

Because part of the annual payment Mary J receives from the annuity is tax-free ($1,513 of the $2,440 is not taxed), her return is the equivalent of $3,028 of taxable income. Measured against her out-of-pocket cost ($35,533), this represents an equivalent, fully taxable yield of 8.5%.

Not Yet Retired?

If you are not yet retired, you still have time to build a nest egg that will be large enough to sustain you during your retirement years—perhaps even large enough to allow you to retire early. Yet, you may be hampered because you are already contributing the maximum allowable to a qualified plan, such as a 401(k).

In that case, consider a deferred-payment gift annuity: There is no contribution limit, you can contribute appreciated securities and not be currently taxed on the gain, you don’t have to cover other employees if you own a business, and you can start payments as early or late as you wish.

Example: George F, 50, desiring a more secure retirement and wanting to make a gift, will contribute $20,000 per year for deferred gift annuities for the next ten years, arranging for payments to start when he reaches the age of 65.

Call On Us

If you have considered making a charitable gift, you may find that the current economic environment makes this an advantageous time to do so.

Please contact us for our assistance with your gift plans.

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