Home  Planned Giving What is a Charitable Gift Annuity? |
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What is a Charitable Gift Annuity? |
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A charitable gift annuity is a way to make a gift to Audubon, and still receive an income for yourself or others. It is a contract under which Audubon, in return for a transfer of cash or securities, agrees to pay a fixed sum of money for a period measured by one or two lives. When you contribute an asset for the annuity you are called the "donor", and the person who receives payments is called the "annuitant" or "beneficiary." Usually, the annuitant is also the donor, but this is not always true.
Charitable Gift Annuity Payments
Payments from a charitable gift
annuity are fixed from the outset. They will neither increase nor
decrease, whatever happens to interest rates or the stock market.
Audubon is contractually obligated to make the payments. Citizens Bank
manages the entire process for Audubon.
Factors Affecting the Size of Payments
The size of the payments from a charitable gift annuity depends on the following factors:
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The gift annuity rate offered by the charity (most charities follow
rates recommended by the American Council on Gift Annuities).
- The value of the contribution.
- The number of annuitants.
- The age(s) of the annuitant(s).
Persons Who Might Benefit From a Gift Annuity
Most
gift annuity donors are planning for their retirement or currently
retired. These donors want to increase their cash flow, seek the
security of guaranteed payments, and would like to save taxes. A
charitable gift annuity to Audubon could be right for people in any of
the following circumstances:
- The interest rates on your CDs and other fixed-income investments have declined, and you would like to increase your cash flow.
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You own appreciated stock or mutual fund shares and have considered
selling some of the shares and reinvesting the proceeds to generate
more income, but you have hesitated because you don't want to pay tax
on the capital gain.
- You would like to count on fixed
payments, which are unaffected by interest rates and stock prices and
which you cannot outlive.
- You want to assure continuation of payments to a surviving spouse without the delay of probate proceedings.
- You would like to provide financial assistance to an elderly parent, a sibling, or other person in a tax-advantaged manner.
Taxation of Gift Annuity Payments
If
the gift annuity is funded with cash, part of the payments will be
taxed as ordinary income and part will be tax-free. If funded with
appreciated securities or real estate owned more than one year, and the
donor is receiving the annuity payments, part of the payments will be
taxed as ordinary income, part as capital gain, and part may be
tax-free. The charity that issues the annuity will send a Form 1099-R
to the annuitant. This form will specify how the payments should be
reported for income tax purposes. For details regarding the taxation of
gift annuity payments, it is wise to consult with representatives of
the charity as well as financial advisors.
Income Tax Charitable Deduction
Taxpayers
who itemize deductions can claim a charitable deduction for a portion
of the original gift. This deduction can result in significant income
tax savings. In short, the deduction is equal to the amount of the
contribution less the present value of the payments that will be made
to the donor and/or other beneficiary during life. The present value of
those payments is determined using IRS tables regarding life expectancy
and assumed earnings, and taking into consideration the amount
contributed and the gift annuity rate.
Audubon can help you
calculate an accurate tax calculation. All charities that offer gift
annuities can provide these calculations to individuals who are
exploring whether a gift annuity is appropriate for them.
What's the Next Step in Giving a Gift Annuity to Audubon
- Contact Jeffrey Hall, senior director of advancement.
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Ask for a financial illustration showing the amount of payments, how
they would be taxed, and the charitable deduction generated by the gift.
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Discuss the financial illustration with your tax and financial
advisors. They can help you make an informed decision, taking into
consideration all relevant factors.
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