Move over, charitable trusts. Make way for the charitable gift annuity.
Typically viewed as entry-level gifting methods thanks to low minimum contribution amounts, low cost, and simplicity, charitable gift annuities have had a spike in inflows from wealthy donors lately. According to a BNY Mellon Wealth Management study, in 2019, assets in gift annuities were up 21% over the prior year, and the average gift was 56% larger. Assets continued to flow into charitable trusts, but at only a slightly higher level than in 2018.
The surge in popularity in gift annuities is likely a result of people’s desire for a guaranteed lifetime annuity at a time when yields are at historic lows in the fixed-income market, and a hesitation to sock money into a charitable remainder annuity trust (CRAT).
A CRAT is the gift annuity’s equivalent in the trust world, and typically a popular tool. But ultralow interest rates and high valuations in the stock market make for a lousy environment for CRATs, says Crystal Thompkins, national director of gift planning services at BNY Mellon Wealth Management, who expects gift annuities’ popularity to extend through this year.
As winds shift in the economy, the markets, and regulatory environment, it’s not uncommon for the popularity of different charitable planning tools to rise and fall. Given the surge in popularity of gift annuities, it’s worth a look at how they size up these days relative to their closest charitable trust cousin.
Charitable Gift Annuities
A charitable gift annuity is a simple contract guaranteeing that if you give a nonprofit organisation a lump sum, it will pay you a fixed, lifetime annuity based on actuarial factors—a host of market factors combined with your life expectancy. Minimum donations are around $2,000 and, unlike a trust, no attorney is required to set one up (hence no attorney fees).
Even if you live beyond your life expectancy, after your lump-sum equivalent has been paid out, you continue to receive the annuity. Depending on the contract, the annuity can continue to pay out to a surviving spouse. If you and your spouse die before your lump sum has been paid out, the charity keeps the balance in its coffers.
Payments can be deferred, which increases the amount paid out in the future annuity. A partial donation for the gift can be taken upfront. Capital gains taxes on the growth of underlying assets are spread over the annuity payments. When interest rates are low, the future capital gains’ bite out of annuity payments is lower, leaving more intact as income, Thompkins says.
Nonprofit groups that offer charitable annuities have large infrastructures, such as museums and universities. “We’re talking those with hundreds of millions in assets that are segregated to support their annuity programs,” Thompkins says. “These are diverse pools designed to absorb potential risk. It’s like managing a pension.”
The downside is that not all nonprofits offer gift annuities, and they aren’t customised, says Pam Lucina, chief fiduciary officer at Northern Trust.
Charitable Remainder Trusts
In contrast, trusts can pay out to a number of different charities, over a specified period of time instead of a lifetime, and can be used to transfer assets to heirs. The CRAT is the most similar to a gift annuity: It turns a lump sum into an annuity, and what’s left at the end goes to charity—at least 10% of assets transferred to the trust is required to be left as a gift.
But the CRAT has lost its luster lately, Thompkins says. The annuity and future gift are dependent on the high probability of the underlying invested assets performing within certain parameters. With stock market valuations high, and the economy in ragged shape due to Covid-19, there’s good reason for concern that the market could enter a sustained bear market.
“In 2008 and 2009, there were trusts that were exhausted with no benefit to either the charity or the donor,” Thompkins says. “Many people are leery now.”
Following the devastation of recent flooding, experts are urging government intervention to drive the cessation of building in areas at risk.
When people talk about making a seachange, chances are this is the kind of property on the NSW South Coast that they have in mind.
Open for inspection for the first time this Saturday, 24 Point Street Bulli offers rare absolute beachfront, with never-to-be-built-out north facing views of the ocean. Located on the tip of Sandon Point, this two-storey property is a surfer’s dream with one of Australia’s most iconic surf breaks just beyond the back wall.
On the lower floor at street level, there are three bedrooms and two bathrooms, including a family bathroom and an ensuite in the master suite. A fourth bedroom is on the upper floor, along with the main living area, and is serviced by its own bathroom.
While this would make a spectacular holiday home, it is well equipped for day-to-day living, with a spacious gourmet kitchen and butler’s pantry set into the articulated open plan living area on the first floor. A separate media room to the street side of the property on this level provides additional living space.
Every aspect of this property has been considered to take in the light and views, with high ceilings internally and spacious, north facing decks on both levels to take in views of rolling waves. If the pull of the ocean is irresistible, it’s just a 100m walk to feel the sand between your toes.
The house is complemented by a Mediterranean, coastal-style garden, while the garage has room for a workshop and two car spaces.
An easy walk to Bulli village, the property is a 20 minute drive from the major hub of Wollongong and just over an hour to Sydney.
Open: Saturday August 6 2pm-3pm Auction: Saturday September 3 Price guide: N/A but expected to exceed $5.3m paid in March for 1 Alroy Street
Contact: McGrath Thirroul – Vanessa Denison-Pender, 0488 443 174