Charitable Gift Annuity

A charitable gift annuity or CGA allows a beneficiary to receive fixed annual income payments from the receiving charity for the life of the annuitant or for a set amount of time, sometimes in something called a bypass trust.  The person that makes the gift is called the donor and the person that receives the payments is called the annuitant or beneficiary.  The donor can also be an annuitant or the donor can make the gift for scheduled income payments to be made to one or two beneficiaries.  A charitable gift annuity is a contract between the donor and the charity.  In return for the donation, the charity agrees to pay a fixed sum of money annually for a period time that can be measured by one or two lifetimes

The donor makes a contribution of cash or liquid marketable securities to a charitable institution of his/her choice.  In return, the donor receives an income tax deduction for a percentage of the amount charitable gift annuity in the year when he/she made the contribution. 

The charitable gift annuity will payout yearly income based on the fixed annuity percentage rate at the time the contribution was made.  The fixed annuity percentage rate is determined by the age of the annuitants when the CGA is scheduled to begin making annual income payments.  The annual income payments will not change for the life of the charitable gift annuity.  The CGA payments can begin immediacy or they can be deferred to a later date and they can be made jointly or successively if there are two annuitants.     

A charitable gift annuity can offer the donor and annuitant several tax benefits including:

  • The donor can claim a charitable deduction for a percentage the original contribution the year the gift is made
  • A percentage of the annual income payments may be exempt from certain income taxes
  • If the donation is of long-term appreciated securities, the donation may be able to reduce applicable capital gains tax
  • CGAs can bypass probate proceedings and supply a steady income for a surviving spouse 
  • CGA payments can supply financial assistance without adding a tax burden to retired or incapacitated relatives   

Even though payments from a charitable gift annuity do not change from the time the CGA is initiated, different CGAs can make varying payments to its annuitants for several reasons.  These reasons include the fixed annuity percentage rate offered at the time of the donation.  The American Council on Gift Annuities (ACGA) proposes the rate for CGAs and most charities abide by the ACGA’s rate recommendation.  In addition, the total worth of the contribution and the number and ages of the annuitants all help to determine the basis for the annual income payouts.

If you are in need of Estate Planning help, get a free consultation with an Estate Planning Attorney near you.

 

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