Sidebar Summer 2018 - 15
Almost Too Good To Be True
By Michael F. Rogers, Esq., Immediate Past President, Montgomery Bar Foundation and
Steven G. Yusem, Esq., Gold Fellow, Montgomery Bar Foundation
or senior members of the Montgomery Bar Association, a
Charitable Gift Annuity ("CGA") can seem almost too good
to be true, but under the old tax law, as well as the 2017 Tax
Cuts and Jobs Act, a CGA provides members age 65 and over with
10 unbelievable benefits.
1 A CGA combines a gift with payments back to the donor
and/or to his or her spouse - the annuitant. A CGA contribution
to the Montgomery Bar Foundation returns periodic payments to
the annuitant for life, at attractive rates, based on the age of the
annuitant at the time of the gift.
2 The fixed payments for life will never diminish even if stock
values drop. Bonds reduce volatility, but they lose value as interest
rates rise, while CGA's do not lose value as they continue to make
guaranteed periodic payments for life. In short, the CGA provides
stability and safety from market vicissitudes.
3 Most of the fixed payments to the annuitant are tax-free
because they are treated as a return of capital rather than income.
If, for example, the fixed payment rate is 5%, the effective taxable
portion of the payment may be only 3% because of the tax-free
4 The donor receives an immediate income tax deduction in
the year the CGA is created.
5 A CGA donor pays no capital gains tax on donated
securities or real estate. The 2017 Act may reduce income tax, but
it does not reduce the capital gains tax. So if a donor contributes
securities or real estate that has appreciated in value, the donor
receives a deduction for the appreciated value without being taxed
on the capital gain.
6 The CGA supplements the donor's retirement income. If
the donor has taken the Required Minimum Distribution for the
year, does not want to consume other assets, and would like still
more cash flow in retirement, a CGA will provide it.
7 The assets of the CGA are not included in the donor's
taxable estate at the donor's death.
8 CGA's may save tax on social security benefits. Income,
even tax- exempt income, counts when calculating the portion
of social security benefits subject to tax. However, because a
substantial part of CGA payments received by the donor is taxfree, that portion is not considered to be income but rather a taxfree return of the principal which the donor invested in the CGA.
Therefore, less of the donor's social security benefits may be subject
to federal income tax.
9 CGA's avoid management responsibilities. All traditional
investments require at least some degree of management. All
such investments can increase or decrease depending upon many
circumstances. However, because the return from a CGA is
equivalent to a fixed annuity, the donor has one less financial
concern to worry about.
10 The CGA provides the satisfaction of supporting the
MBF, the grants and awards of which have one objective in
common: the protection of the most vulnerable members of our
own Montgomery County community including children who
suffer abuse and neglect, women desperate to escape domestic
violence, seniors threatened with shameful exploitation, citizens
faced with intractable barriers to critical health and human
services, and the impoverished struggling to survive.
While the MBA serves to enhance our professional lives, the
MBF saves lives. Through CGA's, senior MBA members can give
back to the profession while the CGA gives back to them.
The first step to taking advantage of this versatile investment
vehicle is to call Mike Rogers at 215-653-0110.
SUMMER 2018 15
Table of Contents for the Digital Edition of Sidebar Summer 2018
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