Charitable Gift Annuities and How They Could Benefit You. What is a Charitable Gift Annuity?A charitable gift annuity is a vehicle used to provide financial gifts to charities and to benefit with income. The gift annuity is a contract under which a charity receives a gift of cash and agrees to pay a fixed sum of money for a period of time. The person donating the money is referred to as the donor and the person receiving the income becomes the annuitant. The same person can be both donor and annuitant but there are no specific rules as to which is the donor and which is the annuitant. It is possible to name two annuitants from one gift. The income received by the annuitant is a fixed amount for a specific time period and is set from the beginning. They will neither increase nor decrease regardless of changes in market conditions or general interest rates. The charity guarantees to make the payments and assumes financial risk for the investment. The size of the income benefits depend on several factors: - The gift annuity rate offered by the charity which can vary from charity to charity. - The financial value of the contribution. - The number of annuitants and their ages. - The length of time the benefit payments will last. Generally, charities will offer a lower rate of income calculation than commercial insurance companies so that a significant portion of a contribution will be available to the charity. Even though the rates may be lower than commercial rates, gift annuities are still very attractive to individuals who want to support a favorite charity and provide income benefits to them. Most gift annuity donors are retired and who want to increase income backed by guarantees with a possibility of tax savings. Some of the decisions to select a charitable gift annuity could be because of the following reasons. - Appreciated stock or mutual fund shares which would cause a capital gains tax liability if sold. - The idea of fixed income payments without risk and stock market volatility. - Income payments that could include a spouse or other family member as a beneficiary benefit. - Interest rates at banks could be in decline and the income tax liability for earned interest could be a negative. Taxes are a consideration in selecting a charitable gift annuity. The category of gift is important because if the gift is in cash, part of the income benefit will be taxed and some will be at free. The factors determining this ratio are based on age and the amount of the income benefit. If the donation is an appreciated asset such as real estate, the payment could be part ordinary income and part long term capital gains. The charity will provide the tax information prior to the gift based. It is always wise to obtain tax advice from your tax preparer before entering into any final agreement. Many taxpayers can also benefit from the deduction of the gift to the charity. If a taxpayer itemizes deductions then a charitable deduction for a portion of the gift may be utilized. This deduction is based on the amount of income benefits agreed upon with the charity. This deduction can result in significant income tax savings and is based on each individual donor and his/her tax situation. A charitable gift annuity can provide to both a donor and a charity several important financial planning advantages. Donors can increase their income while obtaining significant tax reductions. Charities can tap into sources of funds which would not become available until the death of the donors. |