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Saturday June 23, 2018

Article of the Month

Blended Gifts — Part II


The idea of asking donors to make a "blended gift" is an emerging trend in the world of philanthropy. A blended gift is the combination of a current gift, or a commitment to make a series of current gifts, together with a planned gift, such as a bequest, charitable trust or charitable gift annuity. The current gift portion of the blended gift will provide the donor and charity with benefits today while the planned gift portion typically provides both current and future benefits. With a blended gift, a donor can make his or her giving go further.

Over the past decade, the focus of charitable capital campaigns has shifted so that many campaigns now include goals with respect to planned gifts. Campaigns now target 20% to 40% of the overall goal towards the receipt of planned gifts. Individuals who have made regular gifts in the past, who strongly support a charity or who have the capacity to make a large gift, may be asked to consider making a blended gift.

As the likelihood of a blended gift request grows, professional advisors—attorneys, CPAs, financial advisors and insurance agents—who work with potential donors will increasingly be asked to help their clients assess the feasibility, benefits and best structure for their clients to make these gifts. This article series will focus on twelve of the most common blended gifts arrangements and the potential donor benefits for each.

Part II of this series focuses on three additional types of blended gifts - a gift and gift annuity, a gift and deferred gift annuity and a gift annuity paired with a bequest. This article will discuss some of the unique aspects of these gifts, the motivating factors and the benefits for the donor. It will also provide examples to illustrate these concepts. While there may be many issues holding a donor back from making a large outright gift, a blended gift may be the answer the donor is seeking. It enables the donor to make an immediate impact while also providing long-term support.


As the previous article in this series explored, many donors may have difficulty parting with their money or appreciated assets outright. For some, it may be a matter of not wanting to give up too much at once. These are donors who have the means to leave a large gift, but would prefer to maintain a certain income level later in life to sustain their current standard of living. The donor who is motivated, at least in part, by the potential for a steady life income should consider funding a charitable gift annuity as part of a blended gift.

A charitable gift annuity (CGA) is a contract between a donor and a charitable organization. The donor contributes a sum of money or an appreciated asset in exchange for the charity's promise to pay an annuity amount for one or two lives. The annuity payout is a percentage of the original funding amount. The percentage is determined according to the actuarial life expectancy of the annuitant(s). The majority of organizations issuing gift annuities follow the American Council on Gift Annuities' (ACGA) suggested rates. The ACGA meets periodically to reevaluate rates and determine whether there should be a change. The ACGA suggested rates are set with the assumption that 50% of the original funding value will be left to charity at the end of the contract if the annuity fund earns the expected net ACGA return.

If a donor is considering making a gift to fund a charitable gift annuity with a certain charity, he or she should contact the charity to inquire as to whether the organization has a gift annuity program in place. Gift annuities are regulated at the state level. Depending on where the donor resides, it may be either fairly simple or relatively difficult for the organization to receive approval to issue gift annuities. There are generally four different state approaches to gift annuity regulation. Many states require charitable organizations to register prior to issuing charitable gift annuities. This involves a detailed application process followed by a period of state review. Some state registrations can be completed in a matter of weeks, while others may take a year or more. Registration fees range from free to several thousand dollars. The states that require registration also require annual reporting. Generally, the states with the more difficult registration processes generally require more extensive annual reports.

Some states require notification prior to issuing charitable gift annuities. These states require a letter or preapproved form to be submitted prior to or just after the execution of the organization's first gift annuity in the state. Other states do not require registration or notification, but allow organizations to issue gift annuities so long as they comply with certain statutory requirements. Common requirements include that the organization has been in existence a certain number of years, holds a minimum amount of unrestricted assets and includes specific disclosure language in its gift annuity contracts. Finally, some states do not have any statutes or case law regarding charitable gift annuities and are thus considered "silent states."

As mentioned above, a charitable gift annuity may be a great solution for a donor who wants to benefit his or her favorite charitable organization, but also needs a payment stream. This donor may not be comfortable giving a large sum of cash or a highly valued asset without receiving anything in return. However, he or she may be willing to make an outright gift today combined with a gift annuity contract.

Example 1
Darren and Erica, ages 82 and 80, would like to make a gift to their favorite charity in response to the charity's current capital campaign. They like the idea of a potential naming opportunity with a large major gift. However, they don't believe it would be wise in the current economic climate to part with a large sum outright. They are willing, however, to give $250,000 if they can receive an income stream in return. Darren and Erica decide to donate $50,000 outright to their favorite charity and $200,000 to fund a charitable gift annuity. They will be entitled to an income tax deduction of $50,000 for the outright gift and $90,521 for the charitable gift annuity. The gift annuity will pay out the ACGA suggested rate of 5.9%, which will provide them $11,800 per year for the rest of their lives.
While many donors will fund their charitable gift annuities with cash, appreciated property can be an excellent funding source for this type of gift. A donor who holds a highly appreciated asset for a number of years may eventually wish to liquidate that asset. The capital gains tax consequences of liquidating the asset may cause the donor to be reluctant to sell the asset. By using the asset to fund a charitable gift annuity, the donor can bypass capital gains on the gift portion of the funding amount. For the annuity portion, the capital gain will be prorated over the life expectancy of the donor.

Example 2
Faith, age 79, owns shares of a technology company's stock that she purchased 10 years ago for $25,000. With the growth of the technology sector during that time, Faith's stock has soared in value to $200,000. If she were to sell the stock, Faith would have a potential capital gains tax liability of $41,650. Faith decides instead to make an outright gift of $50,000 worth of stock and fund a gift annuity with the remaining stock valued at $150,000. Faith is entitled to a charitable income tax deduction of $50,000 for the outright gift and $74,561 for the charitable gift annuity. In addition, she saves $10,413 in capital gain on the outright gift and $12,570 on the gift annuity for an overall tax savings of $22,983. Faith will receive annual payouts of $9,900, of which $2,277 will be taxed at ordinary income rates, $5,398 will be taxed at capital gains rates and $2,225 will be tax-free return of principal. With this plan, Faith can bypass a portion of the capital gain and spread out the tax liability of the remaining gain over her life expectancy.


In addition to immediate charitable gift annuities, some donors might prefer a deferred charitable gift annuity. A deferred charitable gift annuity operates in exactly the same manner as an immediate charitable gift annuity in all respects, except that it must begin paying out more than one year after the gift date. As with immediate CGAs, the ACGA suggests annuity rates for deferred CGAs. Rather than using fixed tables, however, the ACGA uses a formula for determining deferred rates. The formula includes an assumed growth rate for the deferral period.

There are many reasons a donor may choose a deferred CGA over an immediate one. First, the deferred CGA may be the donor's only option at the time. Many charitable organizations have minimum funding and age requirements for their gift annuities. If the donor does not meet the minimum age, he or she may be limited to funding a gift annuity where the first payout is deferred until the donor reaches the minimum age established by the charity.

Example 3
George is 75 years old and is interested in making a combination of an immediate gift and a life income gift with his favorite local charity. Specifically, George wants to give $25,000 outright to the organization and use $50,000 to fund a life income gift for his new wife, Hazel, age 63. The charity informs George that the funding amount for the life income gift is below their $100,000 minimum for funding a charitable remainder trust administered by the organization. While $50,000 is well within the organization's gift annuity funding range, Hazel is two years shy of meeting the charity's minimum age of 65 for entering a gift annuity contract. In addition to the outright gift of $25,000, George and the charity agree to enter into a $50,000 charitable gift annuity contract with the first payout deferred for two years. For the year in which the gift is made, George will take a total income tax deduction of $60,821 for the blended gift. Beginning in two years, Hazel will receive an annual payout of $5,000, of which $2,580 will be tax-free return of principal.
A donor might also prefer to delay the start of payouts for a number of years if he or she does not currently need the additional income but foresees a need in the near future. Retirement is one such circumstance. A deferred charitable gift annuity can be a great way for the donor to set up a supplemental income stream for the future while also providing for charity.

Example 4
Harris, 65 years old, plans to continue working for another decade or so. He and his wife, Irene, age 63, own shares of stock that have doubled in value over the years. Harris and Irene appreciate the work of their local charity and would like to do their part to support its work. They are also interested in the potential charitable income tax deduction that they would receive when they make a gift. They have built up moderate retirement savings, but would like to ensure that they are receiving a good income when they retire. They decide to make an outright gift of $30,000 combined with a deferred charitable gift annuity of $300,000. In addition to the $30,000 income tax deduction, Harris and Irene will take a $120,722 deduction for the gift annuity. At an annuity rate of 6.7%, they will receive $20,100 annually beginning when Harris reaches age 75.
It should also be noted that by setting up a deferred gift annuity that will begin payments in a number of years, the annuity will pay out at a higher rate than if they had either set up the annuity immediately or waited the same number of years and set up an immediate gift annuity. For example, the ACGA suggested rate for a two-life immediate gift annuity for donors aged 65 and 63 is 4.2%. If those same donors waited until they were 75 and 73, the suggested rate would be 4.9%. However, if those donors were to immediately set up a deferred gift annuity to begin paying out at 75 and 73, the suggested rate is 6.7%. Thus, it behooves a potential donor to fund the annuity sooner rather than later.


As noted in the introduction above, a blended gift is generally a combination of a major gift and a planned gift. However, there are circumstances in which a donor might consider a blended gift consisting of two planned gifts. Much of the focus of this article has been on donors who, for one reason or another, will not commit to a making a large major gift towards a charitable organization's capital campaign, but may be able to give a smaller sum outright combined with a planned gift. There are other potential donors, however, who are unwilling to make any outright gifts during life without receiving something in return.

When a charitable gift annuity is combined with a bequest, the donor is able to make a current donation to fund a life income gift as well as a testamentary transfer of a major asset. The gift annuity allows the donor to set up a stream of income. With a bequest, the donor can make a commitment to give to charity without giving up control over the assets during life. This combination, therefore, allows the donor to maximize the impact of the gift, take a charitable income tax deduction in the year of the gift and leave a sizeable amount to charity at death.

Example 5
Jim and Kelly are 82 and 81 years old and in good health. They have a low rate of return on their CDs and are looking for a way to increase their income. Through discussions with the gift planner at their favorite charity, Jim and Kelly learn about the many ways they can contribute to charity while also planning for their future. They decide to fund a charitable gift annuity with $200,000. Based on their ages, a joint and survivor charitable gift annuity pays a 6% rate. Jim and Kelly will receive annual payouts of $12,000, part of which will be tax-free. They will also receive a charitable income tax deduction of $90,214 in the year of the gift. In addition to the charitable gift annuity, Jim and Kelly have set up an appointment with their attorney to include a bequest to their favorite charity in their estate plan.
Many individuals have accumulated substantial IRAs over their working lives. As discussed in the prior installment of this article, IRA owners may find that while the IRA gives them some security during their retirement years, it is not the optimal asset to leave to heirs. The owner of an inherited IRA must pay taxes on any distributions received. Therefore, given the choice between a testamentary transfer of an IRA or another type of asset, an informed individual will likely choose to leave other assets to children. Designating charity as the beneficiary of an IRA may be a great way for a charitably inclined individual to make an impact on his or her preferred charitable organization. Note that IRAs and other types of income in respect of a decedent (IRD assets) are usually passed on by beneficiary designation rather than by will or trust. Thus, an IRA owner who is considering a blended gift of a charitable gift annuity and a bequest may find that an IRA beneficiary designation will accomplish the same goal.

Example 6
Jim and Kelly meet with their estate planning attorney and discuss with him the assets that they might use to make a bequest to charity. While going through their portfolio, the attorney mentions that Jim's IRA will be subject to significant income taxes after Jim and Kelly pass away. Although the $400,000 IRA is a substantial asset, the distributions to their children will increase their adjusted gross income and may even bump them up to a higher tax bracket. In addition, it may also increase the size of Jim and Kelly's estates, subjecting their estate to federal estate taxes. After hearing this news and discussing other, more favorable assets to leave to their children, they agree with their attorney that the IRA would be the best candidate for a testamentary transfer to charity. The attorney explains to them that a codicil to their will is not necessary. Rather, he explains, Jim can simply execute a new beneficiary designation form for his IRA. Jim prepares a new form with Kelly remaining as the primary beneficiary and the charity as contingent beneficiary of the IRA.


A blended gift is a great way for donors to contribute toward a charity's capital campaign while maintaining assets for use later in life. Donors who combine an outright gift or a bequest with a gift annuity—whether immediate or deferred—are able to maximize their giving and maintain the security of an income stream for life. In addition to the satisfaction of knowing that they are furthering charitable purposes, a blended gifts donor will enjoy substantial tax benefits from his or her gift, whether an immediate charitable income tax deduction, bypass of capital gains or an estate tax charitable deduction.

Published June 1, 2017
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Previous Articles


Shelby Harder, 2018
Dr. Irving Auld and Dorothy
Roher Auld Scholarship

"Many students take for granted what a university has to offer. However, I am thankful every single day for the opportunity to attend this prestigious school. At Lawrence, you have the ability to engage in Socratic debates about the world we live in at dinner, play recreational or NCAA sports, and talk one on one with brilliant professors. At Lawrence, you don't just 'learn' a subject, you are immersed in it. You dive into the liberal arts and these professors show you the beauty in it all, and how everything is tied together. I am a Biochemistry major with a soft spot for rocket science, philosophy, and evolution. Lawrence is my dream school, and it would have never been possible without the Dr. Irving Auld and Dorothy Roher Auld Scholarship. I am forever grateful for their generosity."

Juliana E. Olsen-Valdez, 2018
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"Lawrence University is a great place for students looking to embrace their multi-interested approach to learning. As a Geology major, I have spent many long hours in laboratories. But, I have also had the opportunity to organize and lead students on outdoor backpacking trips, help build a stronger community for International students, participate in dialogues on campus initiatives, attend dozens of musical events, and study abroad in a field-based geology program, all while taking classes in a variety of academic spheres on campus. Lawrence, as an institution and student body, creates a collective of learners, listeners, and leaders who are continuously evolving their understanding of the world around them. I am fortunate to have the support of the Carroll Family Scholarship, so that I can say I am a part of this exceptional community too!"

Weiqi "Vicky" Liang, 2019
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Anthony Cardella, 2018
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Milwaukee-Downer Scholarships and Professorships

Some of the many recipients of Milwaukee-Downer scholarships gather for a photo with Carolyn King Stephens M-D'62 and Marlene Crupi-Widen M-D'55 in January 2014 at the annual scholarship luncheon.

Rosamund Victoria Bille Adler Scholarship
Dr. Charles E. Albright Scholarship
Helen Daniels Bader Scholarship
James G. and Ethel M. Barber Scholarship
Catharine Beecher Endowed Fund for Downer Women
Bessie A. Bell Scholarship
Berk Scholarship
Frederick C. Best Scholarship
Beta Study Club Scholarship
Lynde Bradley Scholarship
Lucia R. Briggs-Alumnae Scholarship
Edith Lange Brooks Scholarship
Anne Barman Caldwell Scholarship
Alice Miller Chester Scholarship
City of Milwaukee Student Funds Scholarship
Milwaukee-Downer Class of 1940 Fund
Milwaukee-Downer Class of 1942 Fund
College Endowment Association Scholarship
Janet Cope Crawford Scholarship
Jessie Mabbott Daniels Scholarship
F. T. Day Scholarship
Rufus Dodge Scholarship
Julia P. Ely and Hannah R. Vedder Memorial Scholarship
General Endowed Scholarship - M-D College
Dr. Alfred W. and Mrs. Ada F. Gray Scholarship
Berenice E. Hess Scholarship Endowment
Lucille Ray Hibbard Scholarship
Belle Austin Jacobs Scholarship
Helen McDermott Jurack and Ronald J. Mason Scholarship
Marjorie S. Logan Scholarship
Nellie Maxwell Scholarship
S. Annabelle & Paul McGuire Scholarship
Memorial Scholarship Fund - Milwaukee-Downer
Milwaukee-Downer Class of 1953 Scholarship
Milwaukee-Downer Class of 1955 Scholarship
Milwaukee-Downer Class of 1956 Scholarship
Milwaukee-Downer Class of 1957 Scholarship
Milwaukee-Downer Class of 1958 and 1959 50th Reunion Scholarship
Milwaukee-Downer Club Scholarship
Milwaukee-Downer/Lawrence College Consolidation 50th Anniversary Scholarship
Francis Evelyn Kelley Morgan Memorial Scholarship
O'Neill-Anderson Family Scholarship Endowment
Elizabeth A. Olson Scholarship
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Aleida J. Pieters Scholarship
Matilda Siefert Puelicher Scholarship
Elizabeth Ann Richardson Scholarship
William M. Ross Memorial Scholarship
Elizabeth Rossberg Scholarship
Charles Frederic Sammond Scholarship
Mildred L. Schroeder Scholarship
Sivyer Educational Fund for Women
Marion Merrill Smith Scholarship
Dr. Elizabeth A. Steffen Scholarship
W. Mead and Elizabeth McKone Stillman Scholarship
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Clare Scherf Sweetman Scholarship
Raymond H. and Jane K. Taylor Scholarship
Jerline E. Walfoort Memorial Scholarship
Barbara E. Wehr Fund
Harmony Weissbach Scholarship
Martha and Frances Wheelock Scholarship
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T. A. Chapman Professorship in Music
Alice G. Chapman Professorship in Physics
Alice G. Chapman Librarianship
Milwaukee-Downer College and College Endowment Association Professorship

Angela Small Fry Intia, 2019
Maurine Campbell Scholarship

"Thanks to the Maurine Campbell scholarship, I have been able to attend the amazing school that is Lawrence University. With the help from this scholarship, I have been able to pursue my dream career in chemistry working with the outstanding and extremely helpful faculty here. Even outside of chemistry I take the time for exploration into my interests and want to give back through my work as a resident life advisor, stock room assistant, and student supervisor at Bon Appetit. Everything I have learned here, academically or not has forever molded the person I am today."

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