Charitable gift annuities have long been a part of America’s philanthropic landscape. In essence they are simple contracts whereby an organization, in exchange for a gift such as stock, cash, or real property will promise to make income payments for the lifetime of the beneficiaries designated by the donor (up to a maximum of two). Most often the income beneficiary is also the donor and/or a spouse; however, annuities can be used to provide for others such as parents, siblings, or even children.

How much might the donor reasonably expect to receive as payment? As a general rule most organizations follow the rates prescribed by the American Council on Gift Annuities. Payout rates are a function of the number and ages of the beneficiaries.

Sample Payout Rates

For one life:
Age 65 / 6.3%
Age 75 / 7.3%
Age 85 / 9.7%
Age 90+ / 11.5%

For two lives:
Age 65 / 5.8%
Age 75 / 6.5%
Age 85 / 8.1%
Age 90+ / 9.5%

Depending upon the nature of the assets used to fund the annuity a portion of the income may escape taxation, increasing the effective yield. A gift of cash maximizes the amount of tax-free income.

For those individuals who hold highly-appreciated assets the charitable gift annuity offers additional benefits. Companies that have seen strong growth over time often have stock that provides investors a lower yield. If stockholders were to sell the stock in order to seek assets with a higher yield they would have to first pay a 20% capital gains tax on all of the growth their stock had seen since they acquired it. Not an especially attractive option. However, if these stockholders were to donate the appreciated stock to the charity of their choice in exchange for a gift annuity they would be able to avoid all capital gain tax and the entire value would be available to them for funding the annuity.

Finally, a charitable gift annuity offers two additional benefits: a federal charitable deduction for a portion of the value of the gift and the knowledge that the donor has supported the mission of an organizations whose work deserves recognition. For the individual who wishes to increase income from less-than-productive assets while also supporting charity there are few options as favorable in this economy as the charitable gift annuity.

For more information about gift annuities, please contact the BLSA at 617.450.0004.