Charitable Gift Annuity

A charitable gift annuity is an agreement between a donor and a single charity. The donor makes a gift to the charity using cash or securities. In return, the donor becomes eligible to take a partial tax deduction for their donation, plus they receive a fixed stream of income from the charity for the rest of their life.

Potential Benefits for Donor

Lifetime income stream through a charitable deduction made today.
Ability to gift more yearly because of the increase in income.
Charitable gift upon passing to support their favorite charity.
Portion of the income stream will be tax-free.

Potential Benefits for Nonprofit

Charitable gift annuity creates three gifting opportunities
Current gift because of the significant tax deduction.
Annual gifts because of the lifetime income to the donor.
Remainder value of the annuity goes to charity when the donor passes

Let's explore the example of Mary (this is a hypothetical example for illustrative purposes only). Mary is 82 years old and a widow who has always been conservative with her money. Mary is concerned about stock market volatility and she needs more income and would also love more tax deductions.

Currently, Mary has $40,000 in a certificate of deposit (CD) at the local bank that is paying 0.5% interest which equals $200 a year before taxes. Mary has two options to help achieve her stated objectives. First, she can maintain the $40,000 CD she already has at the local bank from which she gets $200 a year before taxes. Or, second, Mary could choose to do a charitable gift annuity. If Mary chose to do a charitable gift annuity, she would find that for a single woman of 82 years of age, the American Council on gift annuities has a payout rate of 7% a year. This equals $2,880 a year before tax. A substantial portion of this payout would be tax-free because it's considered return on principal.

The charitable gift annuity income of $2,800 per year before tax would be guaranteed for Mary's lifetime and when she passes the remainder goes to her favorite charity. Since she would be making a deferred charitable gift, she would receive a current income tax deduction of up to $27,000 which she can then use to reduce her income taxes in the year the gift was made. If she only used part of the $27,000 deduction, then the remaining value could be extended as a deduction over the next five years.

If your nonprofit does not offer charitable gift annuities but you have a donor who is interested in one, then we can help you solve this problem. We have worked with several third party companies that would help to implement and administer a charitable gift annuity on behalf of your nonprofit. Contact Bill Eckert, Senior Financial Advisor, today at (913) 322-9177 to learn more.

This example is hypothetical only, and does not represent the actual performance of any particular investments. Investments in securities do not offer a fixed rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and when sold or redeemed, you may receive more or less than originally invested.

Bank certificate of deposits are insured by an agency of the Federal government and offer a fixed rate of return whereas both the principal and yield of investment securities will fluctuate with changes in market conditions.

Financial Professionals do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation. Neither Cetera Wealth Services, LLC nor any of its representatives may give legal or tax advice.

Potential Drawbacks: The annuity rates vary from charity to charity and are based on a variety of factors, such as the amount of the gift, and the donor’s age when the gift is made. Charitable annuity rates are generally lower than non-charitable annuities, because the primary purpose of the annuity is to provide funding for the non-profit. The decision is permanent. You’ll also have to pay income tax on the income stream, and payments are fixed and won’t adjust for inflation, as some non-charitable annuities do. Charitable annuities may not work for many people because they are charity specific. They’re often better tools for older people looking to help leave and establish their legacy. For younger donors, the rates will be so low that it may not work well for them.