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Charitable Gift Annuities

A charitable gift annuity can provide tax benefits now and a life-time income for the donor and a beneficiary if desired. It allows a donor to transfer property (which could be cash or securities, for example) to a charity and retain the income from the property.

In basic terms, a Charitable Gift Annuity involves a transfer of property to a charity in exchange for the charity's promise to make payments to the donor and/or another named individual (or individuals) on an annual basis over the life expectancy of the annuitant (or annuitants). The annuity is an unsecured contract between the charity and the donor with full faith and credit of the charity promising to make the payments.

Part of the value of the transfer is considered a gift to the charity and an income tax deduction is permitted to the donor for that portion. A portion of each payment received by the annuitant is treated as nontaxable return of capital and a portion of each payment is treated as taxable income. If the transfer involves appreciated assets, the part of the payments that represent capital gains is prorated over the life expectancy of the donor.

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. Since the payments do not begin for a period of time, the fund will grow without withdrawls until the payments begin. With more money in the fund once payments begin, the payments will be larger than with an immediate annuity.

An attractive benefit of this arrangement is that it enables 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. Please contact us for an illustration of how your gift can produce income for life.