|
Sunday, May 5, 2024
 |
Case Studies |
Refund Due for Termination of "Single" Status, Part 2 of 3
|
Case:
Steve Reid, 80, retired fifteen years ago after working most of his life as a product manager for a Fortune 500 company. At the age of 80, Steve, a widower, decided to move into a retirement community in south Florida. The retirement community required an entrance fee of $50,000 from all new residents. However, the fee would be refunded over time using an amortized schedule.
Soon after moving into the retirement community, Steve fell in love with another local resident, Eva. After two years of courting, Steve and Eva married. Now Steve plans to move into Eva’s suite, because her suite has a much better view of the lake than Steve’s suite. As a result of the marriage and move, the retirement community will refund the remaining $40,000 balance to Steve.
At present, Steve does not have any need for this money. In fact, he would be happy to give it to the retirement community which has brought him such happiness. However, his children prefer that he save this money for a “rainy day,” i.e. health related costs.
Question:
Is there a way Steve could save for a “rainy day” and ensure that the retirement community receives a substantial gift from his estate? What benefits would Steve and Eva receive from such a plan? What are the potential drawbacks?
Solution:
A flexible deferred gift annuity is an excellent option for Steve and Eva. With a $40,000 flexible deferred gift annuity and a tentative starting date three years from now, Steve and Eva could receive payments of $3,400 a year, which is a very good 8.5% annuity rate. If they choose to wait two more years to start payments, their annuity rate would rise to 10.1%.
However, if a sudden health problem required payments two years from now, Steve and Eva would still be entitled to an annuity rate of 7.35%. In order to take advantage of this flexibility, Steve and Eva merely have to make an election and inform the issuing charity. Then their annuity payments would begin on the next starting date. However, if Steve and Eva do not require care or additional income, they can continue to let the gift annuity defer which increases the payout substantially for subsequent years.
In addition to this safety net, Steve and Eva would receive a charitable income tax deduction of $21,656, which is subject to the 50% AGI limitation. The one potential drawback is that Steve and Eva could have access only to the income and not the principal. Because Steve and Eva have additional assets totaling $800,000, this is an acceptable limitation to the flexible gift annuity plan.
Steve loves the idea that his beloved retirement community could receive such a large gift. Just as importantly, Steve’s children feel comfort in knowing that their father and new mother will have some extra resources for a “rainy day.” Therefore, Steve and Eva happily fund the flexible deferred gift annuity on their one month anniversary.
|
|
|
|
