Charitable Gift Annuities are a contract where the donor(s) give an irrevocable gift of cash or other assets to a qualified charity and receives a charitable deduction. In return, the charity agrees to pay a fixed amount of money to the annuitant(s) for their lifetime. The annuity payments are not “income”, a portion of the payments are considered to be a partial tax-free return of the donor’s gift, which are spread over the lifetime of the annuitant(s). The contributed property becomes a part of the charity’s assets, and the payments are a general obligation of the charity. The annuity is backed by the charity’s entire assets, not just by the value of the contribution. Where the donation is in the form of other assets, securities for example, the value of the gift is determined by the fair market value on the gift date.
Many states regulate charitable gift annuities and require the charity to provide the state with a published gift annuity rate chart of the maximum annuity rate the charity offers each donor (annuitant), listed by the actuarial age (age to nearest birthday) on the gift date. The charity can spend a portion of the contribution at any time, including immediately after receipt. However, the charity must maintain sufficient reserves (as required by state laws) and satisfy regulatory requirements of the state where the charitable gift annuity was issued.
Charitable Gift Annuity – Agreements Several types of charitable gift annuities are available, but not all states allow the use of each type. Most times the state requires the charity to submit each different type of agreement it prefers to offer for approval. A few of the types of gift annuities are:
Immediate Gift Annuities As the name suggests, annuities that begin making payments at the end of the period immediately following the contribution are called immediate gift annuities. These periodic annuity payments can be made monthly, quarterly, semi-annually or annually, as defined in the agreement.
Deferred Gift Annuities Where the annuity payments at a future date chosen by the donor. Deferred annuities payments must be more than one year after the date of the contribution.
Tuition Gift Annuities These annuity payment begin at an annuitant(s) specific age. They are most often purchased by a parent or grandparent to provide college funds for a young child. At the specified age, the annuitant has the option of receiving annuity payments over his or her lifetime, or elect to receive much larger payments for a specified term (usually four or five years) as defined in the annuity contract.
Flexible Gift Annuities The starting date of this type of annuities is chosen by the annuitant(s). A “target date” for the payments to begin is chosen at the time of the gift. A range of payouts with a variety of fixed payment amounts and differing starting dates are offered by the charity. The charitable deduction remains fixed, therefore the annuity payment for each starting date would change. The payments would be higher if the starting date is later and lower if the starting date is earlier. Annuitants would need to decide on an annual basis whether or not to begin the annuity payments that year.
Versions of Agreements Typically, there are three versions of each type of agreement. They are:
“single life” agreement – annuity payments for the lifetime of the annuitant(s),
“two lives in succession” agreement – annuity payments for the lifetime of the annuitant and then pay a second person if he or she survives the annuitant, and “joint and survivor” agreement – annuity payments to a husband and wife simultaneously, each getting half of the payment, and upon the death of one of the annuitants, pay the survivor the full annuity.