Two tax tools to keep handy

September 27, 2019

Charitable gift annuities: Need-to-know bullet points

Charitable gift annuities can be very effective philanthropic planning tools for the right donor. For advisors whose practices aren’t exclusively focused on charitable planning, though, it can be hard to get up to speed quickly on what you need to know. Here is a checklist that can help.

Through a charitable gift annuity, a donor makes a transfer of assets to a charitable organization and in return receives a lifetime income stream and a partial tax deduction.

  • When the donor dies, the remaining funds are retained by the charity. 
  • The charitable donation portion of the transaction is calculated based on Internal Revenue Service rules for determining the amount of the contribution that is in excess of the present value of the annuity.
  • A donor can fund a charitable gift annuity with a variety of assets, including marketable securities and cash. 
  • Actuarial calculations are used to establish the payout amounts, paid in equal installment payments that are considered a partial tax-free return of the donor’s original gift.
  • Generally a large residual flows to the charity after the donor’s death. 
  • The charity’s own assets, not just the donated assets themselves, back the annuity payouts. Because of this dynamic, charitable gift annuities are regulated by most states to ensure that the charity has enough reserves to meet obligations. 
  • The American Council on Gift Annuities is a good source of additional information about this tool. 

HOW WE CAN HELP
BCF is happy to work with you to identify whether a charitable gift annuity would be an effective tool for your client. Keeping up with the rules and regulations for charitable gifts of all types is one of the many ways we serve you, your clients, the nonprofits they care about, and the community we all love.  

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