The Charitable Gift Annuity

A classic philanthropic gifting instrument is the Charitable Gift Annuity. Many nonprofit organizations have used the Gift annuity for many years.

The first recorded Charitable Gift  Annuity was written in 1843 when a Boston merchant first donated money to the American Bible Society in exchange for a flow of income.

Today, the concept includes valuable benefits for donors. Perhaps more valuable than the financial advantages is the satisfaction donors gain by helping continue the mission and good works of a donor’s college, hospital, social agency, community foundation or cultural agency.

A Charitable Gift Annuity is an instrument in which the donor transfers a sum of money or securities to a nonprofit organization in exchange for a fixed amount of income each year. The amount never changes. The amount of income the donor receives is dependent of the donor’s age. The older the donor, the higher the rate of income will be.

In  today’s challenging times, a charitable gift annuity can be a real benefit to many older individuals who are on fixed incomes. A nonprofit organization can be a real service to older members of their constituency by offering charitable gift annuities.

As an example; an 84 year old woman with an interest in her favorite organization can contribute $20,000 to fund a gift annuity. The organization, following the American Council of Gift Annuities approved rates, agrees to pay the donors 7.9% or $1,580 per year. This compares to a rate of 1.53% (estimated national average rate for 24 month CD) or $306 in annual income from a certificate of deposit. In addition, the donor will receive a $10,942.60 contribution deduction in the year of the transfer. Furthermore, of the $1,580 of annual income $1,240 will be tax free income for a period of 7.3 years.

Note: Because of the contract nature of a Charitable Gift Annuity, some organizations may not be able to issue this instrument. Please contact your legal counsel and the board of directors/trustees before beginning a Charitable Gift Annuity program.