Charitable Gift Annuities

An annuity, called a "charitable gift annuity", may be issued to a donor who irrevocably transfers cash or property to a qualifying charity.  As part of the exchange, the donor receives a promise of payment of a lifetime annuity from the charity.  The amount the donor receives is determined by several factors:

  • The amount and form of the donation;
  • Whether the annuity is payable over the donor's lifetime, over multiple annuitants' lives, or over the lifetime of another annuitant;
  • The age of the annuitant or annuitants at the time the annuity payments are to begin;
  • The annuity rate adopted by the American Council on Gift Annuities (ACGA), based upon an actuarial calculation factoring current mortality studies, projected investment returns on invested reserves, projected administrative costs and a required actuarial residuum.

Tax Benefits

Up to 100% of the amount of the donation may be deducted from the donor's taxable income subject to certain limitations and depending upon the nature of the donation.  Generally, if the donation consists of cash, the deduction would be limited to 50% of Adjusted Gross Income.  Where appreciated property (subject to long-term capital gain treatment) is donated, the deduction would be limited to 30% of Adjusted Gross Income. (Refer to your tax advisor for specific tax advice applicable to your individual situation.)

Typically, disposition of an appreciated asset might otherwise create taxable income to the donor. However, in the case of a charitable gift of such asset, the tax deduction is based upon the fair market value of the asset and not upon the donor's basis, and no gain is recognized on the increase in the value of the asset.  Therefore, by donating such property, the tax deduction, even though capped at 30% of AGI, may actually exceed the donor's basis in the property.  And the lifetime annuity payment received from a Charitable Gift Annuity may well be greater than that which a donor could receive from selling the asset, paying capital gains taxes and purchasing a commercially available annuity with the remainder of the funds.

A portion of the payments is determined to be a partial tax-free return to the annuitant in exchange for the donor's gift, which would be spread over the remaining life expectancy of the donor(s) at the time they choose to begin receiving their income.

Additional Benefits

The amounts donated to the charity are excluded from the donor's estate and not subject to his or her creditors.

The irrevocable donation to the charity becomes part of the charity's assets, therefore, the entire assets of the charity serve to guarantee the payments to the donor regardless of the investment performance actually experienced by the investment.

The donor receives personal satisfaction from the knowledge that the donation made will ultimately benefit a selected worthy cause.

The donor can take comfort from the fact that he can never outlive the lifetime income from the annuity.

Individual Retirement Accounts or 401(k) plans can be donated and annuitants other than the donor may be named to receive the lifetime income at some future date.

Click to see How A Charitable Gift Annuity Works!

Click to see IRS Publication 526, dated November 5, 2013, regarding Charitable Contributions: