A charitable gift annuity is a contract between an individual and a charitable organization by which the individual makes a gift to the charity and, in return, receives an income for life. It is quite popular and is chosen by constituents who desire to have a fixed income stream along with certain tax benefits. Income payment rates are based upon age and life expectancy. The donor receives a fixed income for life paid either quarterly, semi-annually, or annually. The older the donor, the larger the income rate. The amount paid to the donor will never vary, and is not dependent on the stock market or interest rates. The charitable organization is legally obligated to pay the prescribed amount to the donor each year.
The current income charitable gift annuity provides an income stream to the annuitant(s) beginning with the first quarter after the instrument is funded. If the annuity is for one life, the income stream is discontinued upon the death of the annuitant. If the annuity is for two lives, the income stream continues until the death of the last annuitant. Generally speaking, senior persons choose to purchase a current income charitable gift annuity with its favorable payment rates.
The deferred income charitable gift annuity provides an income stream to the annuitant(s) beginning with the date of deferral. If the annuity is for one life, the income stream is discontinued upon the death of the annuitant. If the annuity is for two lives, the income stream continues until the death of the last annuitant. Because income is deferred until a later date, interest compounds over the set period of time and when income payments begin, they are made at a very attractive rate. Younger persons may find a deferred charitable gift annuity to be an important instrument for the provision of supplemental income for retirement.
Both the current income and the deferred income charitable gift annuities offer major tax benefits for the annuitant(s). When you transfer cash or assets in exchange for a gift annuity, you are permitted to take an immediate tax deduction for a portion of the value of the asset that is transferred. Some of your annuity income is tax-free since part of it is interest income and part is a return of principal. In addition, since a contribution to a gift annuity program is considered a gift, the donor may claim a charitable deduction in the year the gift is made. Upon the death of the donor, probate and estate administration costs for the donated assets are avoided.