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Gift Annuity Quiz

How much do you know about charitable gift annuities? Here is a short quiz to test your knowledge about one of the most popular American charitable gift techniques.

True or False:

T    F -  The donor who creates a gift annuity is known as the “annuitant.”

T    F – The maximum number of annuitants is two.

T    F -  Donors can deduct the entire amount funding a gift annuity

T    F -  Annuity payments are lower for older annuitants.

T    F – Gift annuity payments can change annually, depending on market factors.

T    F -  Rates paid on gift annuities are generally lower than commercial annuities.

T    F -  Only nonprofits may issue gift annuities.

T    F -  Gift annuities are inherently risky for donors.

T    F -  Gift annuity payments may be deferred for years, if desired.

T    F -  Part of the annuity payment is tax-free to the annuitant.

Answers:

  1. False. The annuitant is the person or persons receiving the annuity payments. A donor may create a gift annuity for another individual, such as a parent.
  2. True. Federal law stipulates that payments from a gift annuity may be made to not more than two individuals.
  3. False. Only the portion related to the gift qualifies for a charitable deduction. The other portion related to the annuity is known as an investment in the contract. Thus, the two-part name, “gift annuity,” alerts us that the amount is only partially a gift.
  4. False. The gift annuity rate is generally higher for annuitants at higher ages when the contract begins.
  5. False. Every year the annuity amount paid will be the same. This steady payment is one of the most compelling aspects of the gift annuity.
  6. True. Part of the contribution is a gift to your favorite charity reducing the portion paid into the contract. Commercial annuities are paid on the entire investment in the contract.
  7. True. Under federal and state law, gift annuities may be created only with qualified charities.
  8. False. Gift annuities are considered to have low risk because they are backed by the issuing charity’s assets and are typically administered with professional care.
  9. True. “Deferred payment gift annuities” are popular among younger donors who are willing to combine the gift while postponing the annuity income. The deferred income compounds as their age increased, resulting in higher payments later on.
  10. True. Over the life expectancy of the annuitant, a portion of each payment is not taxed. How much isn’t taxed depends on the age of the annuitant at the start of the contract and the asset funding the annuity.

How did you do on the quiz? If you’d like to know more, call or email me at 614-338-2365, jjacobs@tcjf.org, or the Columbus Jewish Foundation, 1175 College Avenue, Columbus. I will be happy to address your questions or run an illustration at no cost or obligation.

Article appears as originally published in the Ohio Jewish Chronicle, Thursday January 21, 2016.

Jackie Jacobs is the Chief Executive Officer of the Columbus Jewish Foundation, the Central Ohio Jewish community’s planned giving and endowment headquarters.

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