Charitable Gift Annuities

Description

A charitable gift annuity is a contract between a donor and a qualified charity in which the donor makes a gift to the charity and, in exchange the charity provides the donor (or other annuitant(s)) with a lifetime fixed income stream.

Key characteristics

  • Potential immediate (partial) tax deduction, based on the donor's life expectancy and the anticipated income stream
  • Reduces the donor's capital gains tax liability for gifts of long-term appreciated assets
  • Donor is subject to income tax on the income stream
  • Donor can often donate many types of assets

Details

A charitable gift annuity is a contract under which a charity, in return for a transfer of cash, marketable securities or other assets, agrees to pay a fixed amount of money (payment) to one or two individuals (beneficiaries or annuitants), for their lifetime. The donor may be an annuitant, or other individual. The maximum number of annuitants is two, and the income payments can be made concurrently or consecutively.

Tax deductions for this type of life-income gift vary with the number of recipients and the age of the donor at the time of the gift. The issuing charity guarantees the income, as it becomes a legal obligation of the charity.

By definition, a charitable gift annuity is what is referred to as a split gift. Part of the gift is to be used by the charity immediately for its charitable purposes, and part of the gift is set aside in a reserve account to be invested and used to support the income payments to the annuitant. Such payments include the earnings on the reserve account and a part of the principal in the reserve account. The ratio of these parts, that is, the parts that are principal and earnings, depends upon the age of the annuitant.