Primer on Charitable Gift Annuities

What Is a Charitable Gift Annuity?

A charitable gift annuity (CGA) is a contract between a donor and a nonprofit organization or institution, certain third-party foundations or donor advised funds that offer CGAs. With a CGA, the donor makes an irrevocable gift and, in return, receives fixed, lifetime payments.

Since the transaction is partially a gift to charity and partially an annuity for the donor, the donor is entitled to an immediate income tax deduction, and a portion of the payments is free from income tax as well for a period of time because they are deemed to be a return of the donor’s investment in the annuity portion of the gift. The donor must itemize deductions in order to benefit.

A donor’s gift annuity payments are fixed and will not vary. They can be scheduled monthly, quarterly, semi-annually or annually. 

In addition, the donor’s payments are backed by the full assets of the charitable organization, regardless of changes in the economy. This promise of fixed payments is very attractive to many donors who desire a steady source of income in their later years.

Gift annuities can be immediate, deferred or flexible. With an immediate gift annuity, which is the most common, payments begin immediately. A deferred gift annuity is one in which payments begin on a specific date at least one year in the future. The flexible gift annuity allows for a less specific date for payment to begin, but it must be defined as a specific range.

Gift Annuity Rates

The American Council on Gift Annuities (ACGA) periodically recommends payment rates, which almost all charities follow (more than 90% always or usually follow ACGA rates).

While no minimum or residual amount is guaranteed from a gift annuity when the annuitant(s) die, the rates recommended by the ACGA are designed so that approximately 50% of the amount transferred will ultimately be available as a residual for charitable use at the death of the annuitant(s).

Generally, the older a donor is at the time they enter into a gift annuity agreement, the higher the payment will be. Rates based on the lives of two people are somewhat lower than the rate for the younger person’s life alone because the rates must take into account the possibility that one of the annuitants will outlive their expectancy.

For current ACGA gift annuity rates, click here.

Marketing Charitable Gift Annuities

In 1995, Congress passed the Philanthropy Protection Act, mandating that gift annuities remain exempt from federal securities regulation under certain conditions, including the condition that prospective donors be supplied with written information that accurately describes how a gift annuity works before the CGA is funded. Marketing materials that inaccurately compare gift annuities with other investments may thus give rise to serious questions under federal and state laws.

The insurance regulators of many states also take an interest in how gift annuities are portrayed. One of their main concerns is to protect their citizens from misrepresentations.

The ACGA website also has valuable information on state regulation issues and best practices.

For more than a century, gift annuities have proven to be an excellent way for many to make charitable gifts.

The Nonprofit’s Role

Charitable gift annuity regulations are determined by the states and are often the responsibility of the state’s Department of Insurance. Each state has different requirements, and a few states have not defined CGA rules. Many nonprofit organizations choose not to offer CGAs because of ongoing administrative requirements and the state regulations, or (for a national organization) they limit the states in which they offer CGAs. There are organizations, such as some community and denominational foundations, that will administer CGAs if you don’t wish to establish your own program.

Click here for more information on state regulations. Most organizations that offer CGAs are ACGA sponsors or members.

If your organization does offer CGAs, they should be outlined in your gift acceptance policy and communicated along with other giving options. If you’re interested in starting a charitable gift annuity program, the ACGA can provide numerous resources and best practices.

Helpful Tools:

• Sharpe Data

Append age, wealth, gender, marital status and other important data to your files.

Click here to learn more. 

• On-Demand Printed Brochures:
  • “Five Ways to Make the Most of Your Gifts”
  • “Q & A About Deferred Payment Gift Annuities”
  • “Q&A About Gift Annuities” (also available without rates)
  • “Q&A About Giving for Income”

Click here to order. 

• On-Demand Printed Booklets:
  • “A Guide to Charitable Giving”
  • “Giving Through Gift Annuities”
  • “Planning for the Future”

Click here to order.

• On-Demand Printed Pocket Guides:
  • “Charted Giving Plans”
  • “Federal Tax Pocket Guide”
  • “Financial Figures Pocket Guide”

Click here to order. 

• Sharpe Planned Giving Websites

Provide a planned giving microsite to help your donors learn how to give through a charitable gift annuity.

Click here to request a demo.