Learn About Charitable Gift Annuities
By J. R. Randolph
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, 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 Not all states permit the use of each type of the many agreements that are available. Usually the charity is required to submit each different type of agreement it would like to offer. Some of the types of gift annuities are:

Immediate Gift Annuities Periodic annuity payments can be made monthly, quarterly, semi-annually or annually, as defined in the agreement. With the first payment to start at the end of the period (month, quarter, etc.), immediately following the contribution.

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 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 annuity payment starting date is chosen by the annuitant(s). The donor would choose an initial "target date" for the payments to start. The charity would

then offer a range of payouts with differing fixed payment amounts and differing starting dates. Since the charitable deduction remains fixed, the annuity rate for each starting date would have to change. The payments would be lower if the starting date was earlier and higher if the starting date was later. Each annuitant would have to determine on an annual basis whether or not they wish the annuity payments to start 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(s),

"two lives in succession" agreement - annuity payments for the annuitant's lifetime and then annuity payments of the same amount to a second person if he or she survives the annuitant, and "joint and survivor" agreement - annuity payments to both spouses 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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