Charitable Gift Annuities

CGAs Offer Secure Retirement Income

In this era of economic uncertainty, at least one retirement vehicle remains secure – the income payment you can receive from a Charitable Gift Annuity (CGA).

Many people set up CGAs to accomplish both income and philanthropic goals.  Part investment and part major gift, a CGA is particularly attractive to a person who is looking for secure income in retirement and tax-saving benefits, perhaps from assets that have risen in value, such as stocks.

“The annuity has been a helpful part of my retirement income, part of which I use to help support my sister in a memory-care unit in Oregon,” says Margaret Shipley, a local Hospice Foundation donor.  “I am glad to be able to know exactly what income I will receive.  I like having a sure thing.”

Hospice Foundation is one of only five local nonprofits licensed by the State of California to offer Charitable Gift Annuities.  A CGA is an excellent way to accomplish your goals for additional, secure retirement income and to help Hospice Foundation fund local end-of-life care.

Because gift annuities may be new to you, this article will explain what a gift annuity is, how it works, and how it benefits you.  We’ll try to answer most of the frequently asked questions about gift annuities.  If your particular question isn’t answered, please email Lisa Bennett, CFRE, Hospice Foundation’s Development Director at lbennett@hospicegiving.org or call her at (831) 333-9017.  You can also learn more by contacting the American Council on Gift Annuities at (770) 874-3355 or by visiting its website at www.acga-web.org.

What is a charitable gift annuity?

A charitable gift annuity is a legal contract between you and Hospice Foundation and can be set up with a minimum donation of $20,000 or more.   Not only do you receive a fixed annual payment for the rest of your life, you will also receive tax savings.  Hospice Foundation prudently invests your donation and uses the earned interest and part of the principal to make the guaranteed annuity payments to you.

Types of Charitable Gift Annuities

Immediate Gift Annuity

With an Immediate Gift Annuity, the annuitant(s) start(s) receiving payments at the end (or the beginning) of the payment period immediately following the contribution. Payments can be made monthly, quarterly, semi-annually or annually. The most common arrangement is quarterly payments at the end of the quarter.

Deferred Gift Annuity

With a Deferred Payment Gift Annuity (DPGA), the annuitant(s) start(s) receiving payments at a future time, the date chosen by the donor, which must be more than one year after the date of the contribution. As with immediate gift annuities, payments can be made monthly, quarterly, semi-annually or annually.

Flexible Annuity

A Flexible (Deferred Payment) Gift Annuity means that the donor does NOT have to choose the payment starting date at the time of the contribution. The annuitant (who may or may not be the donor) may choose the payment starting date based on his/her retirement date or other considerations. The older the annuitant(s) when the payments start, the larger the payments will be.

(Source:  American Council on Gift Annuities)

How does a charitable gift annuity work?

The amount of your annual payments will depend on the amount transferred, the ages of the beneficiary(ies), and the annuity rate schedule in effect at the time of the gift (See chart below).  Once the annuity is established, the payments remain fixed, regardless of the changes in the economy.  This makes the gift annuity especially attractive to older donors (55 for deferred CGAs and 65 for immediate and flexible ) who like the security of fixed, guaranteed payments.

“Having a Hospice Foundation Charitable Gift Annuity gives me peace of mind plus a feeling of partnership with the Foundation, a win-win combination,” says Pat Goetz.

What can a charitable gift annuity provide?

It can provide you additional secure income for your lifetime (and the lifetime of your spouse or another designee); significant tax breaks at the time of the gift and for the remainder of your life expectancy; and support for Hospice Foundation for years to come.  Your assets remain secure and offer a consistent level of income for you.

A CGA also offers you peace of mind.  Because of the financial obligations to the designee, the State of California Dept. of Insurance imposes stringent requirements on nonprofits before they may offer CGAs.  Hospice Foundation is proud to be among just a handful of qualified nonprofits in Monterey County to offer CGAs.

Who may receive payments from the annuity?

Payments may be made to one or two beneficiaries (also called annuitants).  While typically the donor(s) name themselves, an annuity can also be established to benefit others, such as a child or sibling.  Upon the death of the first annuitant, the payments are continued for the lifetime of the survivor.  You may name anyone you want as an annuitant.

What determines the amount of the annuity payment?

The fixed-dollar annuity payments will be determined at the time the annuity is entered into, and will be based on the number and age(s) of the annuitant(s) at that time.

How does a gift annuity benefit the Hospice Foundation?

At the end of the annuitant’s life (or, with a two-life annuity, the end of both lives) the remainder of the principal you have transferred will be used by Hospice Foundation to support quality, compassionate end-of-life care programs and services in Monterey and San Benito counties.

Are there tax advantages with a gift annuity?

Yes.  The donor receives a charitable deduction immediately.  In addition, the annuity payments you receive from Hospice Foundation are partially tax-free, representing a return on the principal contributed.  Note:  When a donor lives beyond his or her actuarial life expectancy, the entire annuity payment will be taxed as ordinary income.

Consider the following example:

Peter and Norma M., both aged 75, contribute $10,000 cash to Hospice Foundation for a gift annuity, naming themselves as the beneficiaries.  As long as either of them lives, they will receive payments of $570 per year (an annuity rate of 5.7%).  For the duration of their life expectancy, $460 of their annual payments will be tax free.  They will also receive an immediate charitable deduction of $2,457 (based on the current Federal discount rate of 1.4%)

Can I contribute securities for a gift annuity?

Yes.  In fact, contributing highly appreciated securities which you have held for more than 12 months offers additional tax savings.  The donor pays no tax on the capital gain attributable to the charitable gift portion of the contribution.  If the donor is an annuitant, the gain attributable to the annuity payments does not need to be recognized in the year of the gift but may be reported ratably over life expectancy.

Is it possible to make an immediate contribution for a charitable gift annuity but delay actual receipt of the annuity payments until later?

Yes.  The deferred payment gift annuity plan is designed to appeal to the younger donor, under 60, who has a high current income, can benefit from a current tax deduction, and is interested in augmenting retirement income on a tax-favored basis.  It involves the current transfer of cash or marketable securities in exchange for an annuity starting at a future date – usually at the donor’s retirement.

The donor realizes an immediate income tax charitable deduction for the gift portion.

Can a deferred gift annuity supplement a qualified retirement plan or an IRA?

Deferred payment gift annuities are an excellent means of supplementing retirement income.

  Single-Life Annuity Payout Rate (As recommended by the American Council on Gift Annuities, effective Jan. 2, 2012)

A Two Life – Joint and Survivor Rate – is available by calling Lisa Bennett, Director of Development at (831) 333-9017 or sending an email to:  lbennett@hospicegiving.org.

Gift annuities are a popular planned giving and retirement vehicle, allowing people the opportunity to simultaneously make a gift and provide for their future financial security.  We would be pleased to answer any other questions you might have, send you a personal financial illustration, or schedule a meeting with you.  There is no charge and you are under no obligation.

Use our special calculator to see how individual instruments can help you and your family and, at the same time, meet your philanthropic goals.

(Please note:  You should consult your attorney about the applicability to your own situation of the legal principles described here.  We would be glad to assist you and your advisor in obtaining the exact deduction for a gift you may be considering.)