Gift Plan Details: Flexible Gift Annuities
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Charitable gift annuities make fixed payments, starting either when the gift is made (an immediate-payment gift annuity) or at a later date (a deferred or flexible gift annuity). Some organizations maintain pooled income funds, which commingle donations, pay beneficiaries varying income depending on the earnings of the fund, and generally operate like a charitable mutual fund. Charitable remainder unitrusts and annuity trusts are individually managed trusts that pay the beneficiaries either a fixed percentage of trust income or a fixed dollar amount.
(Our handy Planned Giving Pocket Guide describes all planned gifts.)
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Yes, if they use the version called a flexible gift annuity. The annuity contract will set out a range of possible starting dates for payments. Each date will offer progressively higher income rates. The donor's charitable deduction will be that corresponding to the earliest possible starting date. As retirement, health and family needs become more clear over time, the donor picks the appropriate starting date in the annuity contract, and requests that you start payments then.
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- One portion of the payment will be considered return of principal by the annuity, and thus tax-free to the beneficiary. If the donor funded the annuity with appreciated property, a second portion of the payment will be taxed at low capital gains rates. The balance of the payment will be taxed as ordinary income. This favorable tax treatment, not available on other types of life-income gifts, increases the effective yield of a gift annuity.
- If the beneficiaries live beyond what their life expectancies were at the time the gift annuity was created, subsequent payments to them will be taxed entirely as ordinary income.
- If the gift annuity is funded with appreciated assets, the donor does not have to pay capital gains tax at the time of the transfer. Only a portion of the capital gain in the donated assets is recognized, and the tax will be spread over the annuity payments, as described above.
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You've come to the right place. Purchase The Ultimate Quick Reference Planned Giving Pocket Guide that also comes with a fold-out "cheat sheet" titled When How and Why to Plan a Gift. At $24.95, it's a bargain. (Quantity discounts for staff, board members and volunteers.)
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