Charitable Gift Annuities
As its name suggests, a charitable gift annuity is part gift to charity and part
annuity. It consists of a transfer of cash or property to a charitable organization
in exchange for the charity's promise to make fixed annuity payments to one or two
life annuitants.
A gift annuity differs from a charitable trust in two important ways. A gift annuity
pays the donor a fixed, guaranteed income (rather than a percentage of the trust),
and it allows the donor to defer income payments to a later date, during which time
the asset used to fund the annuity grows, increasing the income eventually distributed.
Also, a gift annuity can be structured to meet a variety of personal needs and desires:
- To pay a lifetime income to a friend or family member before donating the remainder
to charity.
- To increase retirement income while gaining an immediate tax deduction.
- To increase the income generated from highly appreciated securities by avoiding
capital gains tax.
All of these gift annuity types also result in a valuable gift
to Domestic Violence Solutions.
Provide for a Loved One
Mrs. Stedman, for example, a wealthy benefactor of Domestic Violence Solutions,
wants to support her 80-year-old sister with an annual gift of $18,000. because
Ms. Stedman is in the 36% federal income tax bracket, she needs an income of about
$28,000 annually in order to offer this support.
Mrs. Stedman approaches Domestic Violence Solutions and asks about establishing
a charitable gift annuity that would benefit her sister. With a one-time gift of
$200,000, DVS is able to purchase an annuity that guarantees Ms. Stedman's sister
an annual income of $18,400 for the remainder of her life. Ms. Stedman also receives
a charitable income tax deduction of 50% of the amount of her gift. (The percentage
deductible depends upon the age of the donor, but ranges from 30% to 50%.) Ms. Stedman
is also pleased that her gift results in a substantial contribution to Domestic
Violence Solutions.
Supplement Your Retirement Income
Another donor, Mr. Evans, is a successful businessman who doesn't need more income
now, but would like to increase his income upon retirement. He also would welcome
an immediate tax deduction to ease his 39.6% annual federal income tax liability.
After talking with his financial advisors, Mr. Evans decides to contribute $25,000
to a gift annuity that will begin making payments to him in 10 years--when he expects
to retire at age 68. At that time, Mr. Evans will receive an annuity of approximately
$3,000 a year for the remainder of his life. He can also take an immediate tax deduction
of about $12,850.
Mr. Evans can also add to his annuity periodically to produce a greater cumulative
retirement income. Every year he does so, he receives a current year income tax
deduction.
Avoid Capital Gains Tax
Mr. Hilton is preparing for retirement and wants to sell non-income producing property
and invest the proceeds in a way that will increase her annual income. By transferring
the property to a charitable gift annuity, Mrs. Hilton accomplishes this goal without
incurring an immediate capital gains tax, but insstead, receives an immediate charitable
income tax deduction. She also preserves more of her capital to fund her annuity
and benefit her favorite charity - Domestic Violence Solutions.