Charitable Gift Annuity
Summary of Gift Plan
The donor transfers cash or securities in exchange for a charity's promise to pay a fixed annuity to one or two individuals for life. The present value of the annuity is less than the amount transferred, creating a gift to charity. Most charities pay annuities based on the rates recommended by the American Council on Gift Annuities.
Income Tax Deduction
The amount transferred to a charity, less the present value of lifetime annuity retained for one or two persons, is deductible. Deductions are identical to those afforded by a charitable remainder annuity trust, but much lower amounts are needed to fund a gift. Higher deductions are possible if the first payment is deferred for several years.
Capital Gains Consequences
Capital gains are partially avoided with gifts of appreciated assets. Remaining gain can be reported ratably over the annuitant's life expectancy, if the donor is the annuitant.
Federal Taxation
Annuity payments are part tax-free return of principal, during the annuitant's life expectancy, and the rest is ordinary income. Capital gain is reportable in part where a donor funds an annuity with appreciated securities; the donor/annuitant may spread such gain ratably over his or her life expectancy.
Transfer Taxes
No transfer tax results from a one-life annuity for a donor or a two-life annuity for a donor and spouse. The donor may keep the right to revoke an annuity established for a non-spouse during life, rendering the gift incomplete for gift tax purposes except for payments received, but the value of the annuity is included in the donor's estate.
Tax Returns
A gift tax return is required if a non-spouse is named current or survivor annuitant, and the donor has not kept the right to revoke. The charity reports annual payments to annuitants on Form 1099-R. Gifts of securities require Form 8283.
Best Funding Assets
Cash gifts ensure maximum tax-free payments. Gifts of securities enable donors to convert stocks to annuities while minimizing capital gains taxes. Many charities do not accept gifts of real estate, closely held stock or tangible personal property.
Special Considerations
Donors are typically in their 70s or older, although deferred payment annuities may be attractive for younger individuals who wish to supplement retirement savings. Most charities accept contributions as low as $10,000.
The donor transfers cash or securities in exchange for a charity's promise to pay a fixed annuity to one or two individuals for life. The present value of the annuity is less than the amount transferred, creating a gift to charity. Most charities pay annuities based on the rates recommended by the American Council on Gift Annuities.
Income Tax Deduction
The amount transferred to a charity, less the present value of lifetime annuity retained for one or two persons, is deductible. Deductions are identical to those afforded by a charitable remainder annuity trust, but much lower amounts are needed to fund a gift. Higher deductions are possible if the first payment is deferred for several years.
Capital Gains Consequences
Capital gains are partially avoided with gifts of appreciated assets. Remaining gain can be reported ratably over the annuitant's life expectancy, if the donor is the annuitant.
Federal Taxation
Annuity payments are part tax-free return of principal, during the annuitant's life expectancy, and the rest is ordinary income. Capital gain is reportable in part where a donor funds an annuity with appreciated securities; the donor/annuitant may spread such gain ratably over his or her life expectancy.
Transfer Taxes
No transfer tax results from a one-life annuity for a donor or a two-life annuity for a donor and spouse. The donor may keep the right to revoke an annuity established for a non-spouse during life, rendering the gift incomplete for gift tax purposes except for payments received, but the value of the annuity is included in the donor's estate.
Tax Returns
A gift tax return is required if a non-spouse is named current or survivor annuitant, and the donor has not kept the right to revoke. The charity reports annual payments to annuitants on Form 1099-R. Gifts of securities require Form 8283.
Best Funding Assets
Cash gifts ensure maximum tax-free payments. Gifts of securities enable donors to convert stocks to annuities while minimizing capital gains taxes. Many charities do not accept gifts of real estate, closely held stock or tangible personal property.
Special Considerations
Donors are typically in their 70s or older, although deferred payment annuities may be attractive for younger individuals who wish to supplement retirement savings. Most charities accept contributions as low as $10,000.
