Planned Giving Arrangements: Charitable Gift Annuity

In a previous blog, we introduced the concept of ‘planned giving’.  If you missed that article ‘What is Planned Giving?’ you might want to review it.  There are many reasons that your nonprofit organization or church should know about planned giving. This is one in a series of articles discussing the ‘tools’ of planned giving. 

 A Charitable Gift Annuity (CGA) is a widely used tool for ‘Planned Giving’ arrangements.  This instrument is typically used by older donors.  An ideal candidate is someone who has funds available that they do not think they will need, but would still welcome receiving a steady stream of income.

Here is how a CGA works.  A 75 year old widow has sufficient resources to assure she will be taken care of for the rest of her life.  Costs for her living facilities and associated living expenses are secure.  Additionally, the following circumstances apply to her: 

  • She has funds in the bank, currently earning little interest. Let's say $50,000.

  • While she is confident she will not need these funds to live on, she would still like to receive some income from it.

  • Her taxes are not necessarily burdensome, but she would welcome getting some tax relief.

  • She would like to do something for your organization, but thinks she needs to keep all her resources just in case she needs the assets or income from them.

This woman is an ideal candidate for a charitable gift annuity.  Here is what a $10,000 CGA would do for her:

  • She would receive a $5.8% annuity ($580) every year, for as long as she lives. Of that $580 she receives each year, $453 would be tax-free.

  • If she is in the 25% income tax bracket, she would have to earn 8.2% to equal this return.

  • The year she begins the annuity she would receive an income tax deduction of $4,339.

So, she is able to start earning income from some money she was not really using, but was afraid to give away.  She receives a nice immediate tax deduction as well as greatly reduced taxes on the income she will receive in the future.  She also has the satisfaction of knowing she has made a contribution to the future of your organization.  Upon her death, whatever remains of the original corpus becomes the unrestricted property of your organization.

Obviously, if she wanted to create a CGA with $20,000 the figures above would just be doubled.  Any size CGA is possible, but most organizations require a minimum amount - probably $10,000.  There are state laws regarding CGA’s so don’t enter into an agreement without knowing you will be in compliance with applicable laws.  If your church or organization does not or cannot qualify to issue GCA’s itself, reliable organizations such as the National Christian Foundation can efficiently educate and handle all details for you.

Interest rates are recommended by the American Council on Gift Annuities.  While rates vary with economic conditions, at any given time the older a person is the greater their rate of return will be.  Currently, for example, the suggested rate for a 90 year old is 9.0%.

 If your church or organization has a significant number of supporters who are 75 or older, it is almost a given that there would be a keen interest in this planned giving arrangement.