Good News for Gift Annuities! | Sharpe Group
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Posted July 25th, 2022

Good News for Gift Annuities!

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For charitable organizations that offer gift annuities and the donors who love them, there is some good news in 2022. The American Council on Gift Annuities, which promotes responsible philanthropy and periodically reviews and adjusts recommended maximum rates for charitable gift annuities, has issued new suggested maximum rates for adoption, effective July 1.

These rates are 0.4% higher than the rates that have been widely used since July 2020. Most charities usually or always follow the ACGA rates (over 90%) and have found that the arrangements work well for both the charitable organization and their donors. For most organizations, charitable gift annuities have been most attractive for people in the 75-85 age range, and the average size of charitable gift annuities has been increasing.

Based on the 2021 ACGA Survey of Gift Annuities:

  • 96% of charitable organizations usually/always follow the suggested rates (some cap rates/some hired actuaries to create customized rate tables).
  • There has been a 66% residuum for contracts ended in the last three years.
  • $98,904 was the average size of completed gift annuities in the last fiscal year.
  • 79 was the average age of immediate payment gift annuities.
  • 70% of the contracts were for a single life.

Click here to view the new suggested rates for those 65 and older.

Based upon a $100,000 immediate payment single-life gift annuity, the following results would occur using an old 1.6% and new 3.8% (August) AFMR, respectively.

$100,000 CGA comparison of old vs. new suggested rate

Age Old Payment Amount Old Deduction (1.6% AFMR) New Payment Amount New Deduction (3.8% AFMR)
65 $4,200 $37,050 $4,800 $41,563
75 $5,400 $46,663 $6,000 $48,838
85 $7,600 $56,1780 $8,100 $57,562

 

Based on the $100,000 example (very close to the average CGA of $98,904), the new payment is significantly more attractive, and the resulting charitable deduction is large enough to allow donors to itemize charitable and other deductions for income tax purposes. Two-life rates are slightly lower than single-life contracts because of lower combined mortality assumptions but have similar results for the prime CGA prospect age pool of 75 to 85 and over.

Those with charitable gift annuity programs will want to follow their gift policy and procedure, which may require board approval of rates to be offered and filing the new rates in certain states.

Popular gift planning calculator programs have been updated and will allow gift planners to use the new rates, old rates or other rates as determined by the charity. The trend towards large gift annuities will allow more CGA donors to benefit from itemized deductions while receiving fixed payments for life.

Many charities receive a significant number of gifts from existing contract holders, so the combination of higher payments and deductions makes this an ideal time to promote CGAs to older donors who have the capacity to make large gifts and to reach out to all current contract holders about the new benefits.

By: Barlow Mann, JD

 

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