Nine Questions and Nine Answers About Charitable Gift Annuities
A Charitable Gift Annuity is a contract between you and a charitable organization. You agree to make a gift to the charity and in return, the charity agrees to make income payments to you for the rest of your life. Here are some questions and answers that you should be know before entering into a Charitable Gift Annuity contract.
1. Can I make a gift to a charity gift annuity of something other than cash?
Yes. A charity can receive gifts of cash, equities, and other property in return for its agreement to make annuity payments to you. However, the charity itself may restrict certain donations, such as real estate. You should contact the charity directly to determine if it has such restrictions.
2. Can I change my mind after I purchase a Charitable Gift Annuity?
No. A Charitable Gift Annuity is irrevocable. Once you enter into the contract with the charity you cannot later cancel it.
3. Can I outlive the income payments from a Charitable Gift Annuity?
No. Income payments from a Charitable Gift Annuity will continue for your entire lifetime, regardless of how long you live, because it is backed by the assets of the charity.
4. Will the amount of the income payments from the Charitable Gift Annuity change?
No. The amount of the income payments from a charitable gift annuity will remain the same throughout your lifetime. This can be both an advantage and a disadvantage to purchasing a Charitable Gift Annuity. It is an advantage in that you know exactly how much income you will receive and can plan your expenses and other income streams accordingly. It is a disadvantage in that there is no cost-of-living adjustment. As the cost of things such as housing, food, clothing, utilities, etc. increases, the amount of income you receive to pay for those things does not.
5. How much income will I receive from a Charitable Gift Annuity?
The amount of income you will receive depends on four factors: your age at the time you enter into the annuity agreement; the number of annuitants you designate to receive the income payments; the amount you donate; the interest rate that the charity is crediting at the time you enter into the annuity agreement.
6. Can I designate someone other than myself to receive the income payments from a Charitable Gift Annuity?
Yes. You may designate someone other than yourself to receive the income payments. In that event, the payments would continue for the rest of that person’s life. However, you should be aware that if you designate someone other than yourself, the present value of the income payments payable to that other person may, under certain conditions, be considered a gift to that person and be subject to gift tax.
7. What is the tax advantages associated with a Charitable Gift Annuity?
Some possible tax advantages include: a federal income tax deduction for the donated assets, deferral of federal and state capital gains taxes upon the sale of donated appreciated assets, avoidance of taxes on future capital gains, and exclusion of the entire value of the gifted assets from the value of your estate for federal and state estate tax purposes.
8. How is the amount of my income tax-deduction determined when I make a donation in exchange for a Charitable Gift Annuity?
The income tax deduction you are entitled to for your charitable donation is less than you would be entitled to for an outright donation because you will be receiving a lifetime income from the gift. The deduction is based on your age and interest rates published by the IRS.
9. Will I have to pay income tax on the income payments from the Charitable Gift Annuity?
Part of your income payment will be tax-free and part will be taxable. The charity and/or a tax advisor can assist you in figuring out how much of the payment will be tax-free.
Would you like to see a personalized illustration showing how a gift annuity could work for you? It may be just what you are looking for to combine your charitable giving with your income needs.
Call or write me for further material about the Columbus Jewish Foundation’s Charitable Gift Annuity program, and to receive a confidential and complimentary illustration. Or, if you desire, I will meet with you to explain the illustration in person. I can be reached at (614) 338-2365. Be assured that there is never any cost, pressure, or obligation when discussing charitable giving with the Columbus Jewish Foundation.
Article appears as originally published in the Ohio Jewish Chronicle Thursday December 7, 2017.
Jackie Jacobs is the Chief Executive Officer of the Columbus Jewish Foundation, the Central Ohio Jewish community’s planned giving and endowment headquarters.