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Interest rates have been rising - what does that mean for certain lifetime gifts to charities?

December 19, 2022
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“Every good act is charity. A man's true wealth hereafter is the good that he does in this world to his fellows.” -Moliere

The IRC section 7520 rate (the 7520 rate) is a number (i.e., interest rate) set by the IRS that's updated monthly. Recently, the 7520 rate has gone up, worrying some individuals who have setup charitable remainder trusts (CRTs). But this rise shouldn't cause alarm - it may be good news for CRAT donors! Here's why:

Generally speaking, when the 7520 rate goes up, the income interest value of a CRAT goes down. That's because the CRAT may now get a higher rate of return on its investments without having to pay taxes on the excess income in the CRAT. However, this decrease in value may also increase the charitable deduction that can be taken by donors. So, while CRATs may not be quite as valuable as they were when the 7520 rate was lower, donors may come out ahead thanks to the increased tax deduction if otherwise deductible.

The American Council on Gift Annuities (ACGA) suggests maximum charitable gift annuity rates that are used by most charitable institutions when issuing gift annuities

What's more, when interest rates increase, it may also increase the "deductible percentage" of charitable gift annuities (CGAs). This percentage represents the portion of each payment that is considered a charitable gift for tax purposes.

The recent uptick in the 7520 Rate may have caused some concerns among those with charitable remainder trusts. However, there may be no need to worry - this may present an opportunity for CRAT donors. Thanks to the increased rate, donors will be able to take a bigger tax deduction when they give via a CGA or CRT. So, if you've been thinking about making a gift to charity, where you maintain some income, now is a good time to consider it!

“A rich man without charity is a rogue; and perhaps it would be no difficult matter to prove that he is also a fool.” - Henry Fielding

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Peter T. Waldron is a registered representative of Lincoln Financial Advisors Corp. Securities offered through Lincoln Financial Advisors Corp., a broker-dealer (member SIPC).  Investment advisory services offered through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor.  Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies.  Waldron Partners is not an affiliate of Lincoln Financial Advisors.  Lincoln Financial Advisors Corp. and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.

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