The charitable gift annuity has been used by many who wish to make meaningful gifts to charitable organizations or institutions, but want to also provide for their own future financial well-being.
A gift annuity makes it possible to transfer cash or marketable securities such as stocks or bonds (including mutual funds) to an organization or institution you want to benefit. In exchange, you and/or someone else you designate will receive fixed payments for life.
Why a Gift Annuity?
The gift annuity serves two purposes: giving and receiving.
Example: Suppose you are age 75 and want to make a substantial gift.
You decide to give $10,000 to a nonprofit recipient and receive annual payments of 5.8 percent for as long as you live. Here is a summary of the results:
- You transfer $10,000 for a gift annuity agreement.
- You are permitted to deduct over $4,095 as a charitable gift in the year the gift is made. (Note: If this is more than you can deduct in the year of the gift, you can carry over any excess deduction into the five succeeding tax years.) The exact deductible amount may vary from month to month.
- You will receive $580 each year for as long as you live. When you file your federal income tax each year, you report only $108 for approximately the next 12 years. During that time, $472 of each payment does not have to be reported as income. Afterward, the entire payment is taxable. (Note: The length of time that payments are partially tax-free depends upon your age when the gift annuity is created.)
- At death, the charitable recipient's obligation to make payments ends, yet your gift continues to be used in the work you wished to further.
A "Double-Duty" Annuity
Let's assume that a married couple, ages 75 and 79, wish to make a gift as part of their financial plans. If they give $10,000 for a gift annuity agreement, under current rates the annual payments will be $530 (5.3 percent x $10,000). They will be made for as long as either lives.
When the couple files their federal joint income tax return, the tables provided by the IRS show that their charitable income tax deduction in the year of the gift is approximately $3,417. (Again, this amount may vary.)
This could result in significant tax savings, which could be invested for additional income. As in the case of an annuity for one person's life, a portion of each year's payment is tax-free for a number of years.
Gift Annuity Rates
Payment rates (used in examples) are reviewed periodically and thus are subject to change. Contact us for current rate information. Once you have given a gift annuity, the rate for that particular annuity will not change.
Frequently Asked Questions
How often will I receive my annuity payments?
Once a year. (The word "annuity" comes from "annual".) We will be glad to discuss dividing them into more frequent payments, however, if you so desire.
Is a gift annuity a suitable income-producing plan for a surviving spouse?
Yes, many survivors appreciate gift annuities because they are designed to make payments for life.
Can I have more than one gift annuity agreement?
Yes. In fact, some people make a new gift annuity every year.
Who can have two-life gift annuities?
Any two people may have one. They need not be related.
Does the interest rate fluctuate with the stock market or the national economy?
No, it is set firmly when you make the gift, and it never changes.
Is it true that the older the person receiving payments, the higher the payment rate?
Generally, it is true, because more of the investment in the annuity portion is returned each year for older persons due to their life expectancy.
Can a single-life annuity be changed later to a gift annuity for two lives?
No, the type is fixed when the gift is made.
What's the difference between the two-life gift annuity rate and the one-life rate?
The rate is slightly lower when two persons receive payments for life since more than one person will benefit.
If I have a gift annuity, can I withdraw the funds later?
No, the agreement has to be irrevocable in order to determine the lifetime payments and charitable deduction accurately.
How much of my annual payment is free from income tax?
The answer depends on the age(s) of the person(s) receiving payments when the annuity is created. The older the age(s), the greater the tax-free percentage of each payment. We would be pleased to provide you with an illustration.