Charitable Gift Annuities

a charitable gift annuity is part gift to charity and part annuity

As its name suggests, a charitable gift annuity is part gift to charity and part annuity. It consists of a transfer of cash or property to a charitable organization in exchange for the charity's promise to make fixed annuity payments to one or two life annuitants.

A gift annuity differs from a charitable trust in two important ways. A gift annuity pays the donor a fixed, guaranteed income (rather than a percentage of the trust), and it allows the donor to defer income payments to a later date, during which time the asset used to fund the annuity grows, increasing the income eventually distributed. Also, a gift annuity can be structured to meet a variety of personal needs and desires:

  • To pay a lifetime income to a friend or family member before donating the remainder to charity.
  • To increase retirement income while gaining an immediate tax deduction.
  • To increase the income generated from highly appreciated securities by avoiding capital gains tax.

All of these gift annuity types also result in a valuable gift to Domestic Violence Solutions.

Provide for a Loved One

Mrs. Stedman, for example, a wealthy benefactor of Domestic Violence Solutions, wants to support her 80-year-old sister with an annual gift of $18,000. because Ms. Stedman is in the 36% federal income tax bracket, she needs an income of about $28,000 annually in order to offer this support.

Mrs. Stedman approaches Domestic Violence Solutions and asks about establishing a charitable gift annuity that would benefit her sister. With a one-time gift of $200,000, DVS is able to purchase an annuity that guarantees Ms. Stedman's sister an annual income of $18,400 for the remainder of her life. Ms. Stedman also receives a charitable income tax deduction of 50% of the amount of her gift. (The percentage deductible depends upon the age of the donor, but ranges from 30% to 50%.) Ms. Stedman is also pleased that her gift results in a substantial contribution to Domestic Violence Solutions.

Supplement Your Retirement Income

Another donor, Mr. Evans, is a successful businessman who doesn't need more income now, but would like to increase his income upon retirement. He also would welcome an immediate tax deduction to ease his 39.6% annual federal income tax liability.

After talking with his financial advisors, Mr. Evans decides to contribute $25,000 to a gift annuity that will begin making payments to him in 10 years--when he expects to retire at age 68. At that time, Mr. Evans will receive an annuity of approximately $3,000 a year for the remainder of his life. He can also take an immediate tax deduction of about $12,850.

Mr. Evans can also add to his annuity periodically to produce a greater cumulative retirement income. Every year he does so, he receives a current year income tax deduction.

Avoid Capital Gains Tax

Mr. Hilton is preparing for retirement and wants to sell non-income producing property and invest the proceeds in a way that will increase her annual income. By transferring the property to a charitable gift annuity, Mrs. Hilton accomplishes this goal without incurring an immediate capital gains tax, but insstead, receives an immediate charitable income tax deduction. She also preserves more of her capital to fund her annuity and benefit her favorite charity - Domestic Violence Solutions.