#CharitableGiftAnnuities

[cpapartners]

Charitable Gift Annuities: Benefit Yourself and Your Favorite Charity 

(Kiplinger) - Donating to charitable gift annuities can provide you with tax breaks now and income later. Here’s what you need to know.

Melissa Lynn Potts, C.P.A.

[theannuityexpert]

What is a Charitable Gift Annuity?

A charitable gift annuity (CGA) is a concept whereby a donor makes a gift of money or property to charity and the charity gives back an agreed-upon income stream to the donor for the remainder of their life or joint lives. If the actuarial value of the annuity is less than the value of the property transferred, then the difference in value constitutes a charitable deduction for federal tax purposes. CGAs are not investments. Annuity payments are tax-free partial returns of the donor’s gift based on actuarial tables of life expectancy. To qualify as a charitable organization under federal law, the entity must be one described in either Section 501(c)(3) or Section 170(c) of the Internal Revenue Code (IRC). The maximum rates of return that are typically paid on these uninsured annuities are established by the American Council on Gift Annuities (ACGA). Gift annuity payments are fixed. They never go down or up.

Charitable Gift Annuities are not insured.

A charity could become insolvent and be unable to make annuity payments. Most gift annuities are not protected by any state guaranty fund. The National Association of Insurance Commissioners has adopted two models to regulate CGAs. The Charitable Annuities Model Act (#240) contains a detailed licensing scheme for CGAs.The Charitable Gift Annuities Exemption Model Act (#241) calls for a simplified registration mechanism.

Who offers charitable gift annuities?

Many individuals are charitably inclined later in life. They want to benefit their school alma mater or they want to benefit their church, synagogue, or temple. They want to give away assets while they are living but would still like some form of income from those assets while they are still alive. The Charitable Gift Annuity can satisfy the desire to make gifts while still living with the desire to improve retirement cash flow. Many charitable and religious organizations will accept gifts for charitable gift annuities and then purchase an immediate annuity to fund the cash flow promised on a charitable gift annuity. This then allows the charity to utilize the remaining funds after purchasing the immediate annuity. In this way, an individual donor can benefit the charity while at the same time turning a non-productive asset into a lifetime income stream. The charity benefits, the donor benefits, and the donors receive lifetime cash flow and an income tax deduction based upon the value of the gift remaining with the charity. This makes for a win-win situation for everyone. Read the full article