gift of CGA

gift of CGA

Forum topic posted in Forum on 4 August 2008| 22 comments
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Joined: 04/04/2001
Points: 75
Donor (father) wants to establish CGA for son (age 64) and daughter-in-law (age 60). [1] Are there gift tax implications to faher/donor? [2] I assume son and wife will receive annual 1099-R and only claim the ordinary income part of payments on their taxes?? [3] Are there any other differences from standard CGA?

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Joined: 05/25/2010
Points: 15
lots of interesting comments
lots of interesting comments here, good work
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Joined: 05/23/2010
Points: 20
Nice information, many
Nice information, many thanks to the author. It is incomprehensible to me now, but in general, the usefulness and significance is overwhelming. Thanks again and good luck!
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Joined: 02/02/2010
Points: 20
Thanx
Hey nice post, good work. Thank you for sharing. Gregor S.
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Joined: 06/15/1999
Points: 15
What about a Two Life with Dad?
Would the gift tax issue be a non issue if dad, who must be over 80 yr. old, does a two life CGA each with son and daughter in law.
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Joined: 03/06/2006
Points: 15
Charitable Gift Annuity
Donor has asked Community Foundation if their Charitable Gift Annuity Program allows the donor to recommend a future change of the named charitable beneficiary. Community Foundations have variance power, but is this permissable with Charitable Gift Annuity legal requirements? Thomas H. Davis, Jr.
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Joined: 02/15/2005
Points: 15
CGA changing named beneficiary
Foundation should be the named beneficiary in the gift annuity contract -- the remainder could then be placed into a donor advised fund (DAF) at the Foundation. The donor, as advisor to the fund, may then be able to change charitable beneficiary of the DAF, without changing the CGA contract.
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Joined: 08/14/2008
Points: 15
differences between a CGA and CRT
??
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Joined: 12/07/2007
Points: 60
Difference between a CGA and CRT
A CGA - Charitable Remainder Annuity is controlled by the charitable organization. They are responsible for the annuity payments, for all the costs in setting it up, and they often determine the percentage payment (although it is recommended to use the rates published by American Gift Council on Annuities). While there are details that can be negotiated, the money ultimately is in the control of the charity (they decide how to invest it or spend it) and the obligation to pay the annuity is a general obligation of the charity. So with an annuity, the charity can be confident that they will end up with the remainder (if any), but they bear the risk of investments and legal, accounting and investment costs. A CRT - Charitable Remainder Trust, is a separate legal entity that enables the donor (or (a) trustee(s) appointed by the donor when setting up the trust) to retain some control over the funds - including how to invest it, etc. The obligation to pay resides solely with the trust (so if it ends up paying all the money out - or loosing it in a poor investment - there is noone else on the hook for paying the annuity payments). The trust (and therefore the donor) is responsible for the risks of investment and all costs, but the trustee (usually the donor) can choose (within the confines of the trust agreement) to change the beneficiary and the recipient charity(ies). The charity does not need to know about the trust - and often does not know. Of course, as will all things, there are many other details and twists that can be added into these gift tools.
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Joined: 05/11/2006
Points: 15
CGA to son
I don't understand why transferring L/T C/G property to a CGA for the son would cause dad to recognize the C/G upon transfer. If dad transfers stock directly to son the holding period and cost basis transfers with it. If a CGA is used it seems that the son would recognize gain as payments are received. The treatment here seems inconsistent. Any thoughts?
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Joined: 03/02/2007
Points: 15
cgas
I work for a retirement community and cgas seem like a great alternative to CDs and other currently low yielding investments. I find that the people who give cgas do so for the charitable aspect, which is fine, but I would like to help other seniors to realize that the rate of return is a good deal for them, too. Due to current market, many people are hesitant to make any changes in their investments. Any ideas on how to sell more annuities in the current market? Thanks
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Joined: 06/08/2001
Points: 15
"selling" cga's
Leslie, That's a great question. Wish I had the answer! I would like to share some of what we face in Alabama.....We have to be very careful comparing CGA's to CD's and we actually can't in any of our marketing materials unless we explain that CD's are considered pure investments and the owner of a CD still has ownership. CGA's are irrevocable charitable gifts and the donor can't get it back if they need the cash later. (so that stops the process right there for some donors) Also CGA's are not investments, even though some donors look at them as such. In the disclosure language that we are required to show to a donor prior to them giving the gift, it states that very clearly. Your software should have the same language. We use PG Calc Gift Manager and it has language pertinent to each state. Also, we don't "sell" them. If we talk about selling them, we would come under the microscope of the Securities and Exchange Commission in Alabama, which is who governs CGA's. (rather than the Insurance Commissioner as in most other states). If we sell CGA's, then they look like investments and we don't have the proper licensing to sell investments. We issue gift annuities to donors who give them as a charitable gift. We can compare the rate of the CD with the rate of the CGA with a donor, but must make clear to the donor that they can't access the cash once they've given it to fund a CGA. But they usually like the rates so much, most will go ahead and give it, if they have other assets to use for things such as long term care. Hope that helps!
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Joined: 07/03/2008
Points: 45
Please figure it out and share!!!
This is a great market for CGAs, but folks are unfamiliar with them and therefore scared. If you figure out a good strategy, let me know. I have found that folks who are willing to really dig in with a trusted adviser and explore their options will seriously consider a cga. Steve Hill Director of Gift Planning University of Nebraska Foundation
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Joined: 06/15/2001
Points: 15
Charitable Gift Annuities for Seniors
Yes, a CGA could make sense for some seniors. However, a true cost comparison requires you compare a CGA with the purchase of a private annuity. As you will see, the income stream will be lower under the CGA. That is because the charity is a partner in this transaction, and is required to receive a minimum payout after the last death (or term if a fixed number of years). This payout requirement effectively reduces the portion of the annuity income stream available to the senior. As a result, the donor to a CGA should really have a charitable intent; in this case, it can be an excellent choice. Otherwise, a private annuity is likely the better choice from strictly a cash flow perspective. Also, unlike CDs and other assets in an investment portfolio, the annuity terminates at the last death (or term), and the funds are not available for leaving a legacy. If this is an important consideration for the senior, the annuity option is less appealing.
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Joined: 02/15/2002
Points: 15
What is a CGA
A Charitable Gift Annuity (CGA) is an excellent option for an individual (up to two individuals per agreement...usually husband and wife) to give to a charity and still have use of the funds. He gets an immediate deduction (partial) and an agreement for set dollar payments for the rest of his life from the charity. At the end of the life of the annuitant(s), the charity has full use of the funds. Annuity payments are typically calculated using the recommended rates from the American Council on Gift Annuities and are dependent upon age. Payments may be deferred. Part of the payments may be taxed at normal income tax rate, part may be tax free, and part, if using highly appreciated assets, may be taxed at the capital gains rate. This is a great way for older clients to give low yielding long term capital gains stock in exchange for payments that will not change. Some Foundations issuing CGA's allow the individual to name OTHER CHARITIES to receive the charitable portion.
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Joined: 03/26/2002
Points: 45
CGA to son
The reciprocal of the present value to the charity is taxable as a gift to the Donor. This amount is easliy obtained from the illustration software. Importanly, if the donor funds this CGA with Capital Gain property (long term) the donor then realizes the full capital gain in the year of the gift. The subsequent taxable portion of the CGA to the son is taxable to the son as ordinary income.
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Joined: 12/05/2003
Points: 30
DCGA
Also, if establishing a DCGA (deferred charitable gift annuity where the first payment is scheduled more than one year from the gift date) then any capital gain on assets given would be immediately taxable to the donor, and the annual gift tax exclusion would not apply. Any size gift would have to be reported as a taxable gift (Form 709), although there would not be any tax liability unless the total of this gift (present value) and any prior taxable gifts exceed $1,000,000 (the gift amount sheltered by the gift tax credit).
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Joined: 03/11/2002
Points: 15
Gift of CGA
Using the right to revoke can include the remaining income interest in dad's estate at his passing. Also, if the father gives appreciated securities (i.e. stocks) in exchange for the charitable gift annuity (CGA), then he will have to recognize a portion of the gain in the year of the gift. Had he been the annuitant, then he could have recognized the gain over his life expectancy.
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Joined: 07/29/2001
Points: 15
cga
if the donor retains the right to revoke the son's interest each yearly payment should qualifiy for the annual exclusion. This should shelter the annuity payment to the son from being a taxable gift to the extent it is under the annual exclusion amount.
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Joined: 11/13/2007
Points: 15
Gift of CGA
Ditto Sherman - what is a CGA?
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Joined: 03/29/1999
Points: 15
CGA = chartiable gift
CGA = chartiable gift annuity
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Joined: 11/10/2005
Points: 15
Gift of CGA
What is a CGA? Remember, you are not writing just for those who went through the initiate rite!
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Joined: 08/03/2001
Points: 15
CGA for son
Yes, there are gift tax implications for the projected lifetime income of the two annuitants, which is reportable the year the CGA is established, (minus the exclusion for that year).
7520 Rates: December 26% November 2.4% October 2.2%

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