Resources for Donors
Charitable Gift Annuities
by Patti Spencer, Esq., Trusts, estates, and tax attorney at Spencer Law Firm, LLC.
A Charitable Gift Annuity is a contract between a donor and a charity. It is a combination of two things: (1) a charitable gift which may give the donor a charitable deduction and (2) a stream of income for the life of the donor (and sometimes the donor’s spouse). In return for a transfer of cash, marketable securities or other assets, the nonprofit agrees to pay a fixed amount of money annually to the donor, or to the donor and another person for life. The return is at a fixed rate that is not subject to market fluctuations and is guaranteed for the life of the contract.
The annuity rate is based on your age and, in the case of a deferred annuity, on the start date. Many charities choose to follow the schedule of recommended maximum rates published by the American Council on Gift Annuities (ACGA). The ACGA publishes recommended rates that vary directly with age – the older you are, the higher the rate. Currently the rates that are available were set in January 1, 2020. For example, at age 69, the rate for a single life annuity is 5%. This means that if you are 69 and you put $20,000 in a gift annuity, you will get $1,000 per year for your lifetime. A portion of the $1,000 is tax-free; it is a partial return of principal. At age 76 the rate for a single life annuity is 6.0%.
The ACGA has announced that it will be publishing new rates effective July 1, 2020. The new rates will decrease available annuity rates; they will be lowered by .3 to .5 percentage points, depending on the age of the donor.
If you think a Charitable Gift Annuity is right for you, it would be a good idea to make the gift before July 1, 2020, to take advantage of current rates before they go down.
Gift annuities are very popular now since the interest rates are extremely low. Interest on certificates of deposit purchased now is under a tenth of 1% – perhaps .08% or even as low as .01%. The 20-year Treasury note pays about 1%. Keep in mind, however, that you cannot compare a gift annuity directly to a CD or Treasury Bill – that is not an apples to apples comparison.
How is a gift annuity unlike a CD or bond? First and foremost, a charitable gift annuity is a charitable gift. What is left at the death of the annuitant(s) goes to the charity. Also, a gift annuity agreement is irrevocable. The donor cannot get the assets that were contributed to the contract back. There is no guarantee of the annuity as there is with an FDIC-insured bank account. For income tax purposes, part of the annuity payments will be taxable, but the rest is a return of principal.
For more information about gift annuities at Lancaster County Community contact Jessica Mailhot at [email protected]. Remember, rates are going down July 1, 2020.