Learn About Charitable Gift Annuities

A Charitable Gift Annuity is a contract where an individual (called a donor) gives an irrevocable gift of value (cash or other asset) to a qualified charity and in return receives a charitable tax deduction. For this gift, the charity agrees to make a payment of a fixed amount of money to the donor(s) for the remainder of their lifetime. These annuity payments are not considered "income" and a portion of each payment is considered to be a partial tax-free return of the donor's gift, which is spread over the donor's lifetime. The gift becomes a part of the charity's assets and the payments are a general obligation of the charity. The annuity is not just backed by the value of the contribution, but is backed by the charity's entire asset base. When the donation is in the form of securities, the value is determined by the fair market value on the date of the gift.

Charitable gift annuities are regulated by most states. They require a published gift annuity rate chart of the maximum annuity rate the charity offers each annuitant which must show the age to the nearest birthday (actuarial age) on the date of the gift. Charities are allowed to spend a portion of the gift immediately, but they must maintain sufficient reserves, which are determined by state regulations, and satisfy all other state regulatory requirements.

Charitable Gift Annuity Agreements There are several types of charitable gift annuities, and not all states permit the use of each type. Generally the charity must submit a sample of each different type of agreement it wishes to offer to the residents of that state before it issues that agreement. 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 This type of annuity is where the annuity payments begin at a future date chosen by the donor. The payments must begin more than one year after the date of the contribution.

Tuition Gift Annuities Usually these types of annuities are created by a parent or grandparent for a young child and the payments are deferred until the child is expected to enter college. The annuitant(s) then has the option of receiving annuity payments for his or her lifetime, or receive much larger payments for a term of four or five years, as defined in the agreement.

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 Generally, there are three versions of each type of agreement, they are:

"single life" agreement - annuity payments for the lifetime of the annuitant,

"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.

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