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Quick Question: What are Charitable Gift Annuities?

Charitable Gift Annuities


Definition


A charitable gift annuity (CGA) is:

"...a contract between a charity and a donor. The donor makes an irrevocable transfer of cash, marketable securities, or other assets acceptable to the charity. In return, the charity agrees to make fixed payments for life to one or two individual annuitants."  (Gilbert, 2018)

How Do Charitable Gift Annuities Work?


A donor makes an irrevocable gift to a charity.


The donor gets a donation receipt based on the value of the gift that may be used for tax purposes.


The charity then makes fixed payments to the donor during their lifetime.


When the donor passes away, the remainder of the gift goes to the charity.


What type of assets can be used for Charitable Gift Annuities?



Common assets that can fund a charitable gift annuity include:

  • Cash

  • Real Estate

  • Stock

How do payments from charitable gift annuities work?


Payments are determined by the value of the gift and the age of the donor. Typically, annuity payments are fixed amounts (James, n.d., p.134).  Payments can be made on a monthly, quarterly, semiannual, or annual basis. The payout rate is determined by the age of the donor at the time the gift annuity is issued.


While not required, many charities, including Legacy, use the payout rates set by the American Council on Gift Annuities. As explained by Dr. Russell James, a professor of Personal Financial Planning at Texas Tech University:

"The intended goal of the American Council on Gift Annuities rates is to identify the payment level at which, on average, 50% of the face value of the initial transfer will remain with the charity at the annuitant's death. These suggested payout rates are based upon current interest rates and expected mortality. The rates can be changed every 6 months to reflect underlying interest rates." (James, n.d., p.134)

The older an annuitant, the higher the payout rate. This is because:

"... on average, younger annuitants live longer and the charity will consequently have to make payments to younger annuitants for more years. ... The higher payout rates at older ages help explain why these gift annuities are most popular with older donors." (James, n.d., p.134)


What are the benefits of a charitable gift annuity?


Some of the primary benefits are:


  • A regular source of income

  • Immediate tax deduction

  • Potential for capital gains deferral

(James, n.d., p. 133)


Interested?


Mike Glover, Legacy's Director of Estate & Planned Giving, will crunch the numbers and send you an illustration showing the estimated payments you will receive and what will be left to charity. Email mike@legacyglobal.org for more information!



Sources


American Council on Gift Annuities - Gift Annuity Rates. (2018, June 15). Retrieved February 13, 2019, from https://acga-web.org/gift-annuity-rates

Gilbert, A. (2018, December 11). American Council on Gift Annuities - FAQs. Retrieved February 13, 2019, from https://acga-web.org/faqs

James, R. (n.d.). Visual Planned Giving in Color: An Introduction to the Law & Taxation of Charitable Gift Planning. Retrieved from http://www.encouragegenerosity.com/VPG.pdf