Should You Use a Charitable Gift Annuity?

Charitable Gift Annuities are a contract where the donor(s) give an irrevocable gift of cash or other assets to a qualified charity and receives a charitable deduction. In return, the charity agrees to pay a fixed amount of money to the annuitant(s) for their lifetime. The annuity payments are not "income", a portion of the payments are considered to be a partial tax-free return of the donor's gift, which are spread over the lifetime of the annuitant(s). The contributed property becomes a part of the charity's assets, and the payments are a general obligation of the charity. The annuity is backed by the charity's entire assets, not just by the value of the contribution. Where the donation is in the form of other assets, securities for example, the value of the gift is determined by the fair market value on the gift date.

Most states that regulate charitable gift annuities require the charity to supply the state with a published gift annuity rate chart of the maximum annuity rate the charity offers each annuitant, listed by actuarial age (age to nearest birthday) on the gift date. While the charity may spend a portion of the contribution immediately, it must maintain sufficient reserves (as determined by state laws) to meet the annuity obligations and satisfy regulatory requirements of the state in which the charitable gift annuities were issued.

Charitable Gift Annuity Agreements There are several types of charitable gift annuities, and not all states permit the use of each type. Generally the charity must submit a sample of each different type of agreement it wishes to offer to the residents of that state before it issues that agreement. The types of gift annuities are:

Immediate Gift Annuities Periodic annuity payments can be made monthly, quarterly, semi-annually or annually, as defined in the agreement. With the first payment to start at the end of the period (month, quarter, etc.), immediately following the contribution.

Deferred Gift Annuities Deferred gift annuities provide for payments to begin at a date in the future, which is chosen by the donor, but must be more than one year after the date of the contribution.

Tuition Gift Annuities The annuity payments start upon the annuitant(s) attaining a specified age. Generally these types of gift annuities are created by a parent or grandparent for a young child, with the donor deferring the payments until the child is expected to enter university. The annuitant(s) then has the option of accepting the annuity payments for his or her lifetime, or elect to receive much larger payments for a term of four or five years, as defined in the annuity contract.

Flexible Gift Annuities The starting date of this type of annuities is chosen by the annuitant(s). A "target date" for the payments to begin is chosen at the time of the gift. A range of payouts with a variety of fixed payment amounts and differing starting dates are offered by the charity. The charitable deduction remains fixed, therefore the annuity payment for each starting date would change. The payments would be higher if the starting date is later and lower if the starting date is earlier. Annuitants would need to decide on an annual basis whether or not to begin the annuity payments that year.

Versions of Agreements Typically, there are three versions of each type of agreement. They are:

"single life" agreement - annuity payments for the annuitant's lifetime,

"two lives in succession" agreement - annuity payments for the annuitant's lifetime and then the same payment to a second person if he or she survives the annuitant, and "joint and survivor" agreement - annuity payments to a wife and a husband simultaneously, each getting half of the payment, and upon the death of one of the annuitants, pay the survivor the full annuity.

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