Legal Definitions - charitable gift annuity

A charitable gift annuity is a contract where an individual donates assets to an approved charity in exchange for fixed, lifetime payments. The charity benefits from the immediate use of the funds and receives any remaining assets after the donor's death. In return, the donor receives a guaranteed income stream and may qualify for income and capital gains tax benefits.

A charitable gift annuity is a special agreement between an individual (or a couple) and a qualified charitable organization. It allows you to make a significant gift to a cause you care about while also receiving a steady stream of income for the rest of your life, or for the lives of you and your spouse.

Here's how it generally works:

• You donate cash, appreciated stock, or other assets to a charity.
• In return, the charity promises to pay you (and/or another beneficiary, like your spouse) fixed, regular payments for life. The amount of these payments is determined at the time of the gift, based on your age(s) and the amount donated.
• The charity benefits immediately from your donation, using the funds to support its mission.
• Upon the death of the last income recipient, any remaining funds from your original gift become the full property of the charity, providing a lasting legacy.
• This arrangement can also offer potential tax advantages, such as an immediate income tax deduction and a reduction in capital gains taxes if you donate appreciated assets.

Here are a few examples to illustrate how a charitable gift annuity might work:

• Example 1: Supporting an Alma Mater with Appreciated Stock

  Mrs. Eleanor Vance, a 78-year-old alumna, wants to support her university's scholarship fund. She owns stock that she purchased many years ago for $20,000, which is now worth $100,000. Instead of selling the stock (and incurring capital gains taxes) or simply donating it outright, she establishes a charitable gift annuity with her university. She transfers the $100,000 in stock to the university. In exchange, the university agrees to pay her a fixed amount annually for the rest of her life. Mrs. Vance benefits from a reliable income stream, an immediate income tax deduction, and avoids paying capital gains tax on the appreciated stock. The university immediately receives the stock, which it can sell to fund scholarships, and will eventually receive the remaining principal after Mrs. Vance's passing.

• Example 2: Ensuring Future Income for a Couple and a Medical Cause

  Mr. and Mrs. Chen, both in their late 60s, are passionate about medical research and want to contribute to a foundation dedicated to finding a cure for a specific disease. They decide to donate $75,000 in cash to the foundation through a charitable gift annuity. The foundation, in turn, commits to making regular, fixed payments to both Mr. and Mrs. Chen for as long as either of them lives. This arrangement provides the Chengs with a predictable income stream throughout their retirement years and an immediate income tax deduction for their gift. The medical research foundation gains immediate access to the $75,000 to advance its research, with the assurance that the remaining funds will eventually fully support its mission after both Mr. and Mrs. Chen have passed away.

• Example 3: A Legacy for Wildlife Conservation

  Mr. David Miller, a 70-year-old widower, wants to make a substantial gift to a wildlife conservation trust to protect endangered species, but he also wants to ensure he has supplemental income during his retirement. He contributes $120,000 in cash to the trust to establish a charitable gift annuity. The trust then begins making annual payments to Mr. Miller for the remainder of his life. This allows Mr. Miller to receive a steady, guaranteed income, enjoy an income tax deduction in the year of his gift, and feel confident that his contribution is actively supporting conservation efforts. The wildlife conservation trust benefits from the immediate use of the funds for its programs and knows that the principal will ultimately become an unrestricted gift to further its mission once Mr. Miller is no longer living.