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Building A Family Legacy with a Charitable Gift Annuity

A charitable gift annuity (CGA) is one of the simpl est, yet most versatile of all charitable gift-givi ng options. But many consumers don’t realize that CGAs are not just gifts – they are financial tools that may be able to provide a retirement income stream f or you, as well as a nest egg to pass on to your heirs. And you don’t have to be rich to benefit fro m a CGA — they can be great ways of providing lifetime income for virtually any retiree or pre-retiree.

What Is a Charitable Gift Annuity?

A CGA is a contract between you and a charity or un iversity, where you transfer money or stock in exchange for a partial tax deduction and a stream o f quarterly or annual lifetime ** income. Unless otherwise specified, after you die, the charity get s to keep the gift. The amount of income that you receive is determined by many factors, including yo ur age, the amount that you donate, and the charity’s policies.

What Organizations Offer Charitable Gift Annuities?

In 2009, the American Council on Gift Annuities (ACGA) conducted its fourth national survey of CGAs in the last 16 years. From these surveys, the ACGA det ermined that there are around 4,000 organizations offering gift annuities throughout the United State s. Examples include the National Geographic Society, the American Red Cross, as well as many religious o rganizations and major universities. To see a comprehensive list of the hundreds of organizations that sponsor CGAs, visit the ACGA website at www.acga-web.org where you can filter by organization, organization type, city, or state to see which organization is best for you. 1

CGAs guarantee a fixed income for life.** Once you establish the annuity, the income rate will never decrease.

Income for Life**

The gift you contribute becomes part of the charity’s assets, and the payments back to you are a general obligation of the charity. The annuity you create is supported by all of the charity’s assets, not just the gift you contribute. CGAs can be attractive alternatives to immediate annuities while also benefitting your favorite charity.

Tax Advantages of Charitable Gift Annuities

CGAs produce immediate tax deductions. These dedications can result in significant income tax savings.Essentially, the deduction is equal to the amount of the contribution less the present value of the payments that will be made back to you during your lifetime. The current 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. If your CGA is purchased with after-tax cash, part of the payments will be taxed as ordinary income and part will be tax-free. That tax-free portion is a return of your principal. CGAs also reduce capital gains taxes — if you purchase your CGA with an appreciated stock, no up-front capital-gain tax is due. Even the taxable portion of the gain would be spread equally over the balance of your life expectancy.

The longer you defer, the more the income and charitable deductions increase.

Immediate and Deferred Income Options

In addition to the immediate gift annuity that starts making payments right away, you can purchase a deferred gift annuity that will start paying you at some point in the future (such as when you reach your anticipated retirement age). When you defer your income payments from a CGA, the amount of income you eventually receive increases significantly, depending on the length of time you defer. The amount of tax deduction provided by your gift can also increase.

Benefits to Heirs

CGAs are not only beneficial to provide a consistent stream of income for yourself, but they may also benefit your heirs. It is possible to create a CGA by way of a provision in your will or trust that will benefit your survivors. Instead of an income-tax deduction, the estate tax your heirs will incur at your death will be reduced by the amount of the deductible portion of the CGA for federal estate-tax purposes. Additionally, if your surviving spouse is the annuitant, the value of his or her income interest qualifies for the federal marital estate-tax deduction as well. This means that none of the CGA will be subject to federal estate tax.

CGAs may provide income to others as well (not just your surviving heirs). CGA payments may be made to up to two beneficiaries. Note however that when a CGA is established for a beneficiary other than yourself or your spouse, the current value of the annuity may be subject to gift tax. But this gift tax may be offset by gift tax exclusion or exemptions. Please note that we are not allowed to provide legal or tax advice, so the above information is our interpretation of current tax law. Please see your tax and legal professionals as to how these concepts may impact your unique situation.

Finding the Best Chartable Gift Annuity

A CGA is an irrevocable contract, so it’s important that the CGA you choose, and the lifetime income stream** it may produce, suits your needs. Ensure that the organization that you would like to give to has an established CGA program where you may be able to optimize your gift. And because the tax implications of a CGA can be complex, it’s important to consult with an agent or advisor who specializes in CGAs.

**Lifetime income may be a benefit of the base policy, or a rider may be available for purchase that provides that benefit.


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Document reference: #1500261-7

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