The Forgotten Planned Gift


The deferred payment gift annuity seems to be the forgotten planned giving instrument.

In a study of  “expectancy pools” of 87 colleges and universities with a total future gift value of $1.5 billion, less than 1% was in the form of a deferred payment gift annuity. (Study completed by C. N. O’Data)

This type of annuity offers immediate tax savings, income payments that start at a future date that you choose, and allows you to help your institution at the same time.

There are several reasons for more not promoting deferred payment gift annuities, the absolute deferred nature of the gift, fear of the need to make large income payments in the future, the uncertainty of the financial markets and the lack of professional planned giving staff to promote and administer a deferred payment gift annuity.

On a positive side, a deferred payment gift annuity may be the ideal instrument to be used in uncertain financial times. A deferred payment gift annuity enables a donor to transfer funds today, receive an immediate charitable contribution deduction, and defer the income until a later date. In the meantime, the nonprofit organization calculates a 3% income factor and a 5% capital appreciation rate and the donor receives a payout on the new value at the time income is received. The standard gift annuity payout rate for a 55 year old individual is 4.4%. However, because of the projected value of the fund in 15 years, the rate of return is 10.3% on the original transfer of $25,000. Furthermore, a large portion of the income will be tax free to the donor.

As an example, John Donor, age 55, transfers $25,000 to XYZ organization in exchange for a deferred payment charitable gift annuity. He asked that the income be “deferred” until age 70. John will receive an immediate charitable contribution deduction of $6,238, annual income of $2,575 of which $1,179 will be free of income tax.

A deferred payment charitable gift annuity is just one of many gifting instruments we offer to our philanthropic clients. Helping nonprofit organizations grow their endowment funds through carefully designed fund raising and planned giving programs is what makes us a unique financial advisor to nonprofit organizations.