What Are Charitable Gift Annuities?

What Are Charitable Gift Annuities?

As a leader of a Christian entity, you need to be aware of Charitable Gift Annuities.  In fact, you may have had one of your members or supporters inquire about them.  Our experience is that many Christian charities and most churches do not offer them and usually have no idea what they are.

There are issues that must be addressed before offering this opportunity.  In most states CGA’s are regulated by the state’s insurance commission.  As such, there are regulations that must be complied with.  Fortunately, there are organizations that can assist with this aspect.

Here is how a CGA works.

Let’s say there is an 80 year old woman who would like to do something for your organization.  However, she does not feel that she can give you significant money right now because she fears she may need everything she has before she dies.  This is a legitimate concern for most seniors. 

Among her assets, she has $50,000 in a CD.  Currently, rates for this investment are around 1% or less.  This would mean she earns $500 annually or less than $42 a month. 

Instead, she enters into a charitable gift annuity arrangement with your organization.  Your organization agrees to pay her an ‘annuity’ for the rest of her life.  The rates for CGA’s are recommended by the American Council on Gift Annuities.  Currently, for an 80 year old the recommended rate is 6.8%.  She would earn $3,400 per year ($283.33 per month) for the rest of her life.

The year she enters into this agreement she would get a deduction of $24,780 for tax purposes.  In addition, much of the income she receives annually is tax exempt because it is considered to be a return of her own capital. 

Your organization obviously needs to properly administer the funds from this agreement.  However, if her investment is professionally managed, it should maintain its original value or perhaps even grow in value.  Upon the death of the donor who is referred to as the ‘annuitant’, whatever the value of the corpus belongs to your organization.

As you can see, this is an investment strategy that many churches and nonprofit organizations need to be aware of.  Caution needs to be exercised before deciding to offer them, but Charitable Gift Annuities should be a valuable part of a complete planned giving program.