Charitable Gift Annuity

The Charitable Gift Annuity is a combination of a gift to charity and an annuity.  Since a portion of the annuity payment is tax free return of principle, the gift annuity may provide the donors with a very substantial income.  The combination of partially tax free income and the initial charitable deduction makes this agreement quite attractive.

PARTLY TAX FREE PAYMENTS - A gift annuity is a contract between the charity and the individual.  The individual, referred to as the annuitant, transfers property to the charity and the charity promises to pay a given amount monthly, quarterly, semiannually or annually to one annuitant for life or two annuitants for both lives.  Part of the payment is interest earned and is taxable as ordinary income.  Part of each payment is return of principle and is tax-free.  However, if an annuitant survives past his or her life expectancy, all later annuity payments will be ordinary income.

GIFTED PROPERTY - Cash or appreciated property may be transferred to charity in exchange for a gift annuity.  With appreciated property, a portion of the capital gains tax is avoided.  Part of the gain is allocated to the charitable gift amount and there is no capital gains tax on that portion.  The rest of the gain is allocated to the annuity portion and is taxed each year over the projected life expectancy of the annuitant.  Since the tax is spread out over the life of the annuitant and the annuitant is receiving in part tax free income, the transfer of appreciated property in exchange for a gift annuity can generate very favorable results.

FIXED PAYMENTS - Gift annuities are most attractive to senior persons.  The annuity amount is fixed and will not change regardless of current investment or market conditions.  Since the more senior person is probably more easily able to plan for the future with a fixed payment, the gift annuity seems most appropriate for a senior individual.