Make Lemonade from (Higher Interest Rate) Lemons

October, 2022

Interest rates, inflation, income taxes and the IRS: four I’s that likely turn up regularly in your conversations with clients.

Let’s talk for a moment about the first of these — interest rates. Wealth planning is impacted by interest rate changes, and so is charitable planning.

When interest rates are high, your clients may want to look closely at annuity vehicles that leave a remainder gift to charity, such as a charitable remainder annuity trust or a charitable gift annuity.

Creating a charitable remainder annuity trust in a high interest rate environment, versus a low interest rate environment, drives down the present value of your client’s income stream, which means that the value of the remainder passing to charity is relatively high and therefore so is the client’s upfront tax deduction for the charitable portion of the gift.

Charitable gift annuities also are becoming more attractive to philanthropic clients, for different reasons. Thanks to the recent increase in rate of return assumptions for charitable gift annuities, this planned giving vehicle is now more attractive to donors who like the idea of a higher payout rate for their lifetime annuity.

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