Charitable Gift Annuities

A Charitable Gift Annuity (CGA), as the name implies, is an annuity with a charitable component – it combines a gift with an investment.  A gift annuity agreement is a contract between the charity and the annuitant(s) under which the charity is obligated to make fixed, lifetime income payments to the annuitant(s).  A CGA can benefit one or two individuals and can be established for a relatively modest sum.  This agreement is regulated by the State and is subject to certain reserve investment requirements.  The annuity rate is based on life expectancy and can be quite generous.  For example, under current tables, payments for a single lifetime, beginning at age 75 may be calculated at a fixed rate of 7.1%.  The gift will also generate a current charitable income tax deduction that is calculated by subtracting the present value of the anticipated income payments from the total amount contributed to establish the annuity.  After the last payment has been made, the charity will have access to the remaining funds.

If the annuity is purchased with cash, the income distributed each year will be paid to the annuitant(s) as both ordinary and tax-exempt income.  If this is considered together with the available income tax deduction, the actual yield will be significantly higher than the fixed annuity rate. When appreciated securities are used to make the gift, the annual income will also have a capital gain component apportioned annually.

A variation of this vehicle is known as a Deferred Charitable Gift Annuity.  It is similar in all respects to a CGA except that income payments are deferred until some future time.  Although the payments are deferred, there is a current charitable income tax deduction.  This deferral serves to raise the annuity rate considerably.  For example, making such a gift at the age of 50 and deferring payment for 15 years, when 65 years of age is reached, may produce an annuity rate of 15.3% for the annuitant.

For more information, contact Clara Nyman,  Director of Development at (212) 870-4938 or cnyman@jhha.org.