The Charitable Immediate and Deferred Gift Annuity for more than 150 years, in layman terms, is a simple contract between the donor and a qualified gift annuity issuing charity. In exchange for this irrevocable gift, the charity agrees to pay one or two annuitants a fixed amount each year for life. In most situations, a substantial portion of each benefit payment is tax-free, increasing the net after tax value. Should the gift be funded with highly appreciated marketable securities, the donor may spread the capital gain over several years instead of only the year of transfer. The immediate gift annuity benefit can be paid on an annual, semi-annual, quarterly, or monthly installment basis. The deferred gift annuity may be chosen to defer annuity benefits until a later date in time. The donor will qualify for the Federal income tax deduction for a portion of the gift contributed minus the present value of the life-income retained by the donor. There is a 30% adjusted gross income limitation with gifts of long-term appreciated property. Gifts in cash are limited to 50% of adjusted gross income, but in either scenario, the unused portion of the deduction, if any, may be carried forward for an additional five years. Donors with depreciated securities often sell these securities, take a tax deduction for the loss, and then gift the net proceeds to charity, which effectively provides a second tax deduction for the contribution.
Any attempt to establish a philosophy of a gift annuity agreement must emphasize the word “gift.” These agreements represent one method through which religious, medical, educational, or humanitarian nonprofit organizations can attract, not promote, gift funds to carry out the organization’s tax exempt purpose outlined in their mission statements. There are two things happening when a person enters into a gift annuity agreement with a charity. The donor is making a charitable gift to the nonprofit organization AND buying a fixed income for life. The donor probably would have gifted the entire amount outright to the organization if he or she could afford to do it. However, as is often the case, the donor needs to make some provision for retaining income during his lifetime.
The Charitable Gift Annuity need not be considered a deferred planned giving vehicle. The concept of reinsuring the guaranteed annuity benefit through a legal reserve life insurance company is stipulated in Revenue Ruling 62-137 (1962-2 CB 28), supplemented by Revenue Ruling 72-438 (1972-2 CB 38).
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Wills, Bequests, Trusts, and Life Insurance.
