You may or may not have considered charitable giving as part of how you distribute your wealth. Whether you have or not, charitable giving can give your wealth and estate plan a serious boost.  There are many different charitable plans, but one we wanted to focus on is the simple but beneficial Charitable Gift Annuity.

The Charitable Gift Annuity (CGA)  “Triple Threat”

CGA provides a “triple threat” of benefits in the following ways:

1. Guaranteed Benefit Income Protection
   A CGA provide for beneficiaries a guaranteed lifetime income (that can be immediate or deferred)
2. Substantial Tax Benefits. There are three ways that setting up a CGA can be kind to your taxes. First, when transitioning the ownership of a highly appreciated capital asset (marketable securities, real estate, business interests, etc.) to a charity in exchange for a CGA, you do not realize a lump sum capital gain. Second, a substantial immediate income tax deduction is given, with any surplus deduction allowed to be carried over up to five additional years. The exact details will depend upon your tax situation. Third, by moving an asset to a CGA, it removes the asset from your taxable estate, which can greatly reduce potential estate taxes.
3. Charitable Benefit

Not only is there a direct charitable benefit, often a CGA can be set up so that the charitable funds are directed by your heirs.

This has a two-fold benefit. Not only does this help to teach your heirs about charitable giving, but it also, quite possibly, insures that your values are continued.

Grinch’s Strategy (aka “Wealth Replacement”)

This is a strategy even the Grinch could love.

Wealth replacement is a fancy term for buying life insurance with some or all of the income stream that would flow to you from the CGA. The theory is that you could give away a $500,000+ asset to a charity, get a current income tax deduction, and use the stream of income from the charity to purchase a $500,000+ life insurance policy. The life insurance policy would be purchased inside an Irrevocable Life Insurance Trust (ILIT). This way, the death benefit will pass income- and estate-tax-free to your heirs.