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A Charitable Solution for Low Return on Your Investments

Posted July 2017

Investors find themselves engulfed in an economic climate that features historically low interest rates on fixed income investments. This can present significant challenges if you want—or need—to generate more cash flow to meet the requirements of your lifestyle. But there is a solution for those who are philanthropic.

If you are seeking income, you may find paltry prospects when looking to traditional sources. Currently the return on money market funds is virtually zero in many cases and literally zero in others. Even the venerable certificate of deposit (CD) is offering very modest returns. For example, yields on a 1-year CD are generally not much higher than 1%. Investors have typically been able to get a higher return by committing to CDs with longer terms, but even the returns on 5-year CDs currently struggle to reach 2%.

Despite these low rates, those with significant charitable objectives are finding they can generate attractive cash flow with a variety of gift options that produce cash flow for life (or for a specified period of time).

CHARITABLE EXAMPLE: Jean, aged 75, has been disappointed by the falling returns on her CDs over the last several years. Her bank has let her know that her $100,000 CD that will mature soon can be renewed for two years at 1.4%.

Jean has long been a strong supporter of our work and would like to find a way to make a significant gift without compromising her current cash flow. She is delighted to learn that instead of renewing the CD, she can use the $100,000 proceeds to create a charitable remainder annuity trust that will pay her $5,000 each year for the rest of her life—more than three times as much cash flow as she can get from the CD. In addition, she can also take an income-tax deduction for $53,297 when she makes the gift and can take up to six years to utilize the deduction. The remaining trust assets will ultimately be distributed to us.

Payments can vary as well as be fixed
You can also create a trust in which your payout can vary—and hopefully increase—based on the investment results of the trust. The charitable remainder unitrust functions much like a charitable remainder annuity trust with one major difference: payments change yearly as the principal value of the trust changes. This creates the possibility of higher future payments if the trust grows in value, and that can serve as a hedge against inflation. However, the opposite also is true: If the value declines, payments would decrease.

We would welcome the opportunity to talk with you about how this life-income gift can help you achieve your cash flow objectives while addressing your important charitable goals to support our mission.

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