Doing Good and Doing Well

Here’s the how
First, of course, the donor has to qualify for a RM; if the donor is a homeowner, has some equity and is at least 62, he’s qualified. For demonstration purposes, let’s assume a 62-year-old donor takes a lump sum of $100,000, which represents his equity (or a portion of it) and converts it to a GA with your organization. At 62, the GA rate for a single annuitant is 5.9 percent, which is almost double taxable equity yields and taxable bank CD yields.

Now your donor has a lifetime income stream of $5,900 every year or $491.66 every month, and you are $100,000 closer to your planned-giving goals. If the donor had a conventional mortgage, it was satisfied in the RM refinance, resulting in him having his monthly payment liquidated. Remember, the RM lender pays the donor. So now your very happy donor has $491.66 per month he didn’t have before and no more mortgage payments to make. And now the family name is in the boardroom and at the top of the gift-recognition plaque.

The benefits
As previously mentioned, RMs and GAs have a number of complementary features and benefits. At the risk of repeating a few, here’s a breakdown:

* They both are senior-friendly. By law, RMs can’t be contracted with a homeowner who isn’t at least 62. The older they are, the greater the RM payout. Since GA rates are actuarially governed, the older the donor, the greater the rate and the subsequent payout.

* RMs and GAs both are market beaters. If home sales are soft and the equity is locked in, how is it accessed? Beat the market by reversing the mortgage. As stated before, GAs beat traditional returns of bank CDs and bond and stock market yields without the risk. The net taxable yield beats a commercial annuity due to the charitable component.