Gift of Variable annuity to Vanguard Charitable Endowment Fund

Gift of Variable annuity to Vanguard Charitable Endowment Fund

Forum topic posted in Forum on 14 July 2009| 2 comments
audience: | last updated: 14 July 2009
3 posts / 0 new
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Joined: 07/14/2009
Points: 30
I am having a hard time getting an answer to my question, which is: I have a Vanguard Variable Annuity with current value of approx $80,000 (Cost basis: 25K), which I wish to transfer to my account with the Vanguard Charitable Endowment Program What are the tax consequences and /or charitable giving tax deductions? No one at Vanguard seems to have an answer and my CPA is on vacation. Thanks for any help you may have to suggest.

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Juan C. Ros's picture
Joined: 02/08/2008
Points: 1025
Commercial Annuity

If the contract was issued after April 22, 1987, you will be treated as receiving an amount of income equal to the cash surrender value of the contract, minus your "investment in the contract" - namely, what you paid to the insurance company.

So in your case, you would have taxable income of $55,000 ($80,000-$25,000) when you assign the contract to the Vanguard Charitable Endowment Program. At the same time, you would be eligible for a charitable deduction of $80,000, which should offset the $55,000 of extra income. Of course, that extra income could affect your overall tax for the year if it pushes you into a higher bracket or if it pushes you into an AGI where your deductions and exemptions are phased out. It may also impact your state income tax, depending on where you live. So you'll want your CPA to make sure he calculates the total impact of the transaction.

Also, if you are under age 59 1/2, there is a risk of triggering the 10% "early withdrawal" penalty, which would mean you would owe an additional $5,500 in taxes.

Give the following references to your CPA for the rules: Code Sec. 72(e)(4)(C); also Friedman v. Comm'r, 65-2 USTC (CA-6, 1965).

If the contract was issued before April 23, 1987, the rules are even worse.

Generally, commercial annuity contracts don't make great charitable gifts. The usual path is to name charity as the beneficiary of the contract, but then you lose out on the current tax benefits.

I hope that helps.

Juan C. Ros

The Ronald Reagan Presidential Foundation

Joined: 09/06/2007
Points: 15
Hello I have 34+ years in the financial industry. Your "transfer" would be for the amount at the time of the transfer. Whether it be a VA or cash, ( unless it's "qualified" moniy) the tax implications should be the same. I would however co-ordinate this "transfer/gift" with your Total life plan regarding income,estate plans, etc..... An Estate Attorney may be your first stop ratherb than the CPA, but preferably they would work in tandem with your financial advisor and everyone should concur with the final out come.... Carl Kaliszewski
7520 Rates: June 3.4% May 3.2% April 3.2%

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