The Lutheran Community Foundation

Most charities are familiar with immediate and deferred charitable gift annuities, but fewer are familiar with flexible-deferred or "super" flexible-deferred gift annuities.

The LCF recently began issuing flexible-deferred gift annuities in addition to immediate and standard deferred.  The basic concept is the same as a standard deferred gift annuity.  The donor makes a gift to the charity in exchange for lifetime income to begin at a future date.  The difference is that the income start date isn't fixed.  The annuitant can "turn on" the income when she is ready.  The longer she waits, the higher the annuity rate gets.

Some donors have taken this concept one step further and created what we loosely refer to as the "super" flexible-deferred gift annuity.  Rather than establishing one larger flexible-deferred gift annuity, they establish several that can be "turned on" at different times.  The charitable deduction they receive is virtually the same and they receive the added flexibility of turning on the income a little at a time.  In all cases, the remainder (at death) creates a charitable fund at the LCF.

Super Deferred Gift Annuity   

• Client approaching own retirement with financial responsibility for a parent.
• Looking for income for parent at high rate without complexities of trust arrangement.

Case Study

Donor:

• Client who could benefit from a charitable income tax deduction now
• Business executive, age 55.
• Current income is high.

Goals:

• Establish future source of retirement income and maintain a flexible retirement date.  (Unsure if he will leave the workforce gradually or all at once.)
• Tax deduction now while working and receiving large salary.
• Support favorite charities upon death.

Solution:
Gift of $100,000 in 2009 to create 10 $10,000 flexible deferred gift annuities.  
Substantial charitable deduction now.
Deduction                     $24,419
Tax savings @ 30%        $7,330
Substantially increased payout rate:
Immediate gift annuity rate @ age 55    4.8%
Deferred gift annuity rate @ age 70    5.7%    

Turn on one per year:
Age    Annual income    Tax-free portion
(cumulative total)
65        $800            $380
66        $1,650            $776
67        $2,530            $1,189
68        $3,470            $1,620
69        $4,470            $2,073
70        $5,530            $2,548
71        $6,650            $3,045
72        $7,840            $3,567
73        $9,100            $4,144
74        $10,430          $4,753

Projected lifetime income:     $146,340

Goals achieved:

• Substantial tax deduction now while income is high.
• Supplemental retirement income.
• Permanently endowed support for donor's favorite charities.