A Charitable Gift Annuity is a contribution made by a donor to a qualified charity that is part gift and part payment made in exchange for a life income for one or two persons.
- It provides annuity payments to the donor and up to one other person.
- The annuity payments are fixed and thus remain constant for the lives involved.
- A donor can establish more than one Charitable Gift Annuity and have payments coordinated into one quarterly, semi-annual or annual check.
- A portion of the annuity payment is treated as return of capital and is thus tax-free.
- Gifts made with appreciated property in exchange for a Charitable Gift Annuity allow the donor to defer capital gains taxes and pay over their life expectancy.
- As an irrevocable gift, a portion of the assets contributed is treated as a charitable deduction. The exact amount of the deduction depends on the age of the donor and/or annuitant, recommended annuity rates and other factors.
- Assets contributed to a charity for a Charitable Gift Annuity bypass probate and may help avoid estate taxes.
- By establishing a Charitable Gift Annuity, the donor is relieved of managing the investment of this asset and receives payments guaranteed by full faith and credit of the charity.
Mary Jones is an 80 year old alumna of MSSU and wishes to make a gift to the Missouri Southern Foundation and receive an income for life. Currently she has a certificate of deposit valued at $25,000 that is coming up for renewal and she is not satisfied with the rates that are being offered by financial institutions.
Mary decides to transfer the amount of $25,000 to the Missouri Southern Foundation in exchange for a Charitable Gift Annuity. Mary receives payments for her lifetime based on an annuity rate for her age of 7.2 percent, which amounts to annual payments equaling $1,800. She also receives a current income tax deduction of nearly half the contributed amount. By establishing a Charitable Gift Annuity, Mary Jones was able to increase her annual income and ultimately provide a future gift of the annuity remainder to benefit MSSU.
This is only one example of how a Charitable Gift Annuity can be used to meet the needs of a donor. In all cases, donors should consult with their attorney, accountant, or estate planner when considering a charitable gift.