Charitable Gift Annuities | Moneta

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For several years, one of my clients and I have been discussing her charitable legacy. Most recently, we had a conversation about Charitable Gift Annuities, and it occurred to me that others may be interested in this topic.

What is a Charitable Gift Annuity?

A Charitable Gift Annuity (CGA) is one of the simplest ways to establish a lifetime income gift. Basically it is a contract with a charity which, in return for cash or appreciated securities (or potentially other assets), the charity agrees to provide the donor a fixed payment for the remainder of the donor’s life. This contract allows a donor to make a meaningful current gift while retaining the right to receive ongoing income.

How is a CGA different than a Charitable Remainder Trust (CRT)?

Although the two sound similar, a Charitable Gift Annuity is considerably simpler to establish and less expensive. A Charitable Remainder Trust may require drafting by a qualified attorney and may even require ongoing management, tax returns, etc. However, CRTs are more flexible and can be desirable for larger dollar amounts (typically $100,000 or more) and/or when a donor may have concerns about a charity’s financial viability.

More details on CGAs

One key benefit of a CGA is the size of gift that can be accommodated. The minimum is set by each charity, but many allow gifts of as little as $5,000 to $10,000. Uniform annuity payment amounts are determined by guidelines established by the American Council on Gift Annuities. Payments are generally annual, but may also be monthly. The amount of the annuity is locked in at the time the gift is made and will not fluctuate over time, which can be positive or negative, depending on the markets, interest rates and/or inflation conditions over the life of the annuity.

In addition to annuity income, the donor also receives a charitable tax deduction for a portion of the gift. The amount deductible varies based on the CGA contract and the donor’s financial situation, but can provide nice tax planning opportunities.

Depending on the flexibility of a particular charity, some variations to the “standard” CGA may be allowed. In most cases, there is a single donor with an income stream over that donor’s lifetime. However, some charities allow annuity payments based on the life of two beneficiaries (for example, a husband and wife). Most CGAs are structured as immediate annuities, meaning that annuity payments commence immediately upon making a gift. Deferring payments may be an option, which results in a higher income stream to the donor.

Important questions to ask

A major drawback of a CGA is its contingency upon the charity’s financial stability. Annuity payments are guaranteed by the charity but they are not insured by any State or Federal programs. Since the financial responsibility to make annuity payments could last many years, a donor should be very comfortable that the charity has the financial strength to meet that obligation.

Donors may also be interested in how the charity will use the gift. Will a gift be used directly to fund the charity’s mission or for administrative expenses? A donor should understand and be satisfied with how their gift will be used by their charity they have selected.

Additional Considerations

If a CGA does not meet your charitable goals, there are a number of other methods of gifting to consider. Several blogs on this topic are available in the Moneta Group archives on our web site, www.monetagroup.com Here are some that may be of interest:

  • Giving to Charity in Tough Times by Kelli A. Jones
  • Philanthropy and the Family Unit by Cynthia L. Barnes
  • Charitable Lead Trusts by Roland Jones
Jones-Kelli

Kelli A. Jones, CPA, CFP®

Kelli is the professional consultant for Pat Duff.