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Monday, May 6, 2024
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Case Studies |
Time for a Smooth Landing
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Case:
John and Mary Gonzalez are both age 75. Fifteen years ago they flew south on vacation. During the flight, the flight attendant was in John's words "the best stand-up comic" he had seen. John thought, "If this crew has so much fun, the company will do well." So John and Mary bought stock in the airline.
And it has done well. Even with the major bump caused by 9/11, the stock has continued to rise. But with oil prices moving steadily higher, other airlines stocks are, in John's words, "dropping like a rock." Therefore, John thought that it might be time to sell and receive a steady income.
Question:
How can John and Mary receive safe and substantial income?
Solution:
They checked the web site of their favorite charity and discovered that a gift annuity at their age would pay 5.7% for both lives. They called their friendly gift planner and asked how they could exchange $200,000 of their stock for a gift annuity.
The gift planner had John and Mary give written directions to their broker to transfer the stock to the charity. They also signed a gift annuity agreement with language that met the requirements of their state. The broker set up a direct transfer of the stock to the charity.
The gift annuity was funded with an amount equal to the mean between the high and the low price for the stock on that date. The charity immediately sold the stock and transferred the cash to its reserve fund. John and Mary receive a 5.7% annuity. Under IRS tables, they received an income tax deduction of over $70,000. This deduction may save over $23,000 in taxes. Plus, part of each payment is tax-free.
The annuity pays 5.7%, or $11,400 based on the $200,000 value. John and Mary receive the $11,400 payments until both of them pass away. At that time, there is a very substantial gift to their favorite charity.
As John says, "It was time to land that plane. Our gift annuity with fixed payments is a wonderful smooth landing!"
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