Charitable Gift Annuities

One of the simplest and most popular charitable gifts is a charitable gift annuity. This gift option is a combination of an investment and a gift and provides life income to the donor (and another recipient if desired - the annuitants). The designated charity accepts the gift and in return obligates itself to pay a fixed and specified dollar amount to the annuitant(s) for life.

A charitable gift annuity immediately becomes the property of the charity and is an irrevocable gift. The charity is legally bound to fulfill its commitment to pay the annuitant(s) for life. Some states have regulations regarding the issuance of charitable gift annuities. Please contact us regarding any questions.

There are two types of charitable gift annuities - immediate and deferred. An immediate annuity begins paying income immediately after the annuity agreement is signed. A deferred charitable gift annuity begins the income payments at a specified date in the future. A deferred charitable gift annuity will generally provide a larger charitable deduction than the immediate annuity and, as the funds will have an opportunity to grow without income distributions for a period of years, the income rate will generally be larger.

Gift Annuity Benefits

As a portion of the annuity is a gift, you'll receive an income tax deduction for the gift if you itemize.

  • A portion of the annual annuity income is exempt from Federal taxes.
  • You may save tax on the capital gain (profit from an investment).
  • You avoid estate taxes, probate, and costs on the amount involved.
  • The charity will have the use of the funds after the beneficiary's lifetime.
  • The payments are fixed and will not fluctuate with interest rates.
  • Your annuity is as safe as the organization you invest with, for the total assets of the organization stand behind their agreement to make payments to you.
  • Generally the funds used to set up a charitable gift annuity may be structured as an unrestricted gift or to fund a particular item or program that is important to you (with the consent of the charity)

Charitable Gift Annuity (Deferred)

A charitable gift annuity can provide tax benefits now and a lifetime income for the donor and a beneficiary if desired. The minimum age for a standard charitable gift annuity with McLeod is 55 years old.

A deferred gift annuity is a variation on a gift annuity. A gift is made and the charitable organization promises in return to pay you an income stream that begins on a future date you specify. The annuity rate is calculated based on your age when the payments begin and will be greater than an immediate annuity based on your current age. The charitable deduction, which you get to take in the year of the gift (subject to your tax circumstances), will also be based on when the payments begin and will also be greater than if it was an immediate annuity. The minimum age for a deferred charitable gift annuity with McLeod is 45 years old.

A flexible deferred gift annuity allows you to pick a range of dates when the annuity payments will begin. For example, you might choose to begin quarterly payments on March 31st of any year not earlier than 2013 or later than 2018. The payment amount will be based on the year you choose in the future to have payments begin. The charitable gift deduction is based on the earliest possible beginning date (2013 in this case) and is taken in the year of the gift, subject to your tax circumstances.

An attractive benefit of deferred gift annuities is that they enable a donor to make a gift now and take a charitable income tax deduction now while in a high tax bracket. Income may be deferred, for instance, until after retirement, when the rate of tax will presumably be lower. Deferred gift annuities are creative ways to delay income to pay for children's or grandchildren's college expenses, supplement your retirement income, or assist with assisted-care living arrangements that may be inevitable. A part of each payment, as in any gift annuity, may be tax-free for a period of years. However, the precise amount of each payment will depend on the tax rules in effect when the payments start.

Charitable gift annuities are the gifts that keep on giving. Rates on charitable gift annuities are based on age and whether the contract is immediate or deferred.

Charitable Gift Annuity Sample Rates

This information is taken from the American Council on Gift Annuities (ACGA) suggested interest rates for charitable gift annuities. The tables published by the ACGA are extensive. For specific information regarding exact ages, please contact us.

The annuity rate is determined at the time the gift is made and will not be affected by future rate changes. As a portion of the annuity is a gift, you will receive an income tax deduction for the portion that is the gift. A portion of the annual annuity income may be exempt from Federal Taxes as it is considered a return of principal. If the annuity is funded with appreciated assets, income subject to capital gain taxes will be deferred over the estimated life of the annuitant. A two-life annuity will make payments to you and your spouse or other annuitant for life without a reduction in payment upon the first death. Your joint ages at the time you make the gift determines the annuity rate.

SINGLE LIFE
  • AGERATES
  • 604.4%
  • 654.7%
  • 705.1%
  • 755.8%
  • 806.8%
  • 857.8%
  • 909.0%
TWO LIVES - JOINT SURVIVOR
  • AGESRATES
  • 60/654.1%
  • 65/704.4%
  • 70/754.8%
  • 75/805.3%
  • 80/856.1%
  • 85/907.3%
  • 90/958.8%
  • 95+/95+8.8%

Charitable Gift Annuity Example

This is an educational illustration and does not represent legal or tax advice. The value and cost numbers have purposely been selected as round numbers to allow for personal interpretation. The value used is not a minimum, maximum or suggested amount. Please consult your legal and tax advisors about your specific situation.

Alan and Connie Richards, 74 and 76 years old, have watched interest rates fluctuate for years.

They have not been satisfied with their money market fund currently earning 1.5%. They have looked at ways they could get back to the 5-6% rate of return they were used to. However, they do not want to increase their market risk by investing in securities that would fluctuate in value.

MONEY MARKET
  • Value:$100,000
  • Interest Rate:1.5%
  • Annual Return:$1,500

For a number of years they have been actively involved with several local charities. In addition to supporting them financially, Connie and Alan have enjoyed volunteering their time and getting to really know the staff and having a deeper understanding of their mission and how they change lives. One day while helping out at her favorite charity, Connie had an opportunity to drop in on the Development Officer and asked her if there was anything that they could do that could help the charity and provide Alan and Connie with some additional income. Connie excitedly brought back a brochure on Charitable Gift Annuities to show Alan.

The Development Officer explained that a Charitable Gift Annuity is a contract between the Richards and the charity. The charity will promise to pay Connie and Alan a fixed rate of return for both of their lives. In this case, the Richards were thinking of a $100,000 annuity. Based on the market conditions and other factors, such as their age, the rate* suggested by the American Council on Gift Annuities (ACGA) is 5.0%. This means that the charity promises and guarantees to pay them $5,000 a year, regardless of changes in interest rates, for the rest of their lives. Because they are not using appreciated assets to fund the gift annuity, part of their payment will be considered tax-free return of principal for the Richards.

CHARITABLE GIFT ANNUITY
  • Amount:$100,000
  • Annual Income:$5,000
  • Equivalent Rate of Return:8.14%
  • Current Year Tax Savings$12,885.00

Based on current calculations*, $3,855.00 of the $5,000 annual income will be free from income tax for 16.4 years. Also, part of their $100,000 is a charitable gift and therefore the Richards get a charitable tax deduction in the current year of $36,814.00. That deduction could save Connie and Alan $12,885 this year (based on their 35% federal tax bracket). These numbers do not consider any state taxes that may be applicable. The tax deduction and tax-free income mean the Richards' effective annuity rate (what they would have to earn to equal it with fully taxable income) is 8.14%.

Connie and Alan are happy with the increased income and the tax savings, and they are really excited about what their gift will mean to their charity.

Example assumes a 2.0 percent applicable federal rate (AFR) and a federal income tax bracket of 35%. State tax liability is not considered. The IRS allows the AFR from the current or one of the two previous months to be used. For a gift annuity, the lower the AFR, the higher the tax free portion of the annuity payments. A higher AFR increases the charitable tax deduction.


* Based on the current ACGA suggested rates effective 1/1/12.
** Adjusted upward because the tax-free portion of $3,885 makes the $5,000 annuity equivalent to $7,091.92 of taxable income for a beneficiary in the 35% income tax bracket and the $36,814 charitable tax deduction reduces the cost of the gift by $12,885.

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For more information or a confidential discussion of your charitable options, please
email or call, Roxanna Prezioso, at (843) 777-2694.

Please note, individual financial circumstances will vary. The information on this site does not constitute legal or tax advice. Donor stories and photographs are for purposes of illustration only. As with all tax and estate planning, please consult your attorney or estate specialist. You may also contact a member of the Professional Advisory Council. All material is copyrighted and is for viewing purposes only. Use of this site signifies your agreement with the terms of use. The content in this Legacy Giving section has been developed for McLeod Health Foundation and is owned by Future Focus.