Who might be interested?  In all cases, the primary motivation of the donor should be charitable intent.  In addition to this, potential donors might…

• Want to increase their cash flow when rates on CDs and other fixed-income tools have declined.

• Own appreciated stock or mutual fund shares and may have considered selling some of the shares and reinvesting the proceeds to generate more income.  However they may have hesitated because they don't want to pay tax on the capital gain.

• Be interested in fixed income payments for life, which are unaffected by interest rates and stock prices.

• Want to assure continuation of payments to a surviving spouse without the delay of probate.

• Wish to provide financial assistance to an elderly parent, a sibling, or other person in a tax-advantaged manner.

Annuity Issuers

• Religious denominations like the Presbyterian Foundation often have foundations that issue gift annuities to benefit their local houses of worship and non-profits affiliated with the denomination.

• Your financial service provider may specialize in non-profit programs and help you establish your own gift annuity program.  This can be a significant undertaking to start and maintain your own gift annuity program.  Yet, it may be justified if you anticipate a large quantity of gift annuities and can maintain a large pool of assets.  If this sounds like a possibility for your organization, read more about starting your own program at the ACGA site:  Considering a CGA Program? by the ACGA.

• Local community foundations.  Check with the local foundations on expenses and conditions for them to manage the gift annuity.

Proposals:  The denominational Foundations and often your financial service provider have proposal software from companies like PGCalc that provide excellent proposal documents for prospective donors to understand very specifically how a gift annuity fits their situation.  

To Establish a Gift Annuity:  The donor enters a contract with and irrevocably transfers the gifted asset to the gift annuity issuer.  NOTICE – it is assumed that your organization would be the beneficiary, but, unless your organization is the issuer of the annuity, the asset should NOT be transferred to your organization.

RATE FACTORS:  The payout rate is the agreed-on percentage of the purchase price paid out each year and includes both interest/dividends and return of principal.

• Rates are determined by the issuer.  The vast majority of charities follow rates recommended by the American Council on Gift Annuities (ACGA).  So  donors are not likely to benefit from shopping rates at different charities.  See the ACGA rates for single life and two lives.

• The age of the annuitant determines the rate.  Higher age = higher rate.

• There may be two annuitants in which case the rates are lower.

• A donor may choose to have a lower rate than the maximum to provide greater benefit to the beneficiary

BENEFITS - ANNUITANT:  The annuitant is the person receiving payment - the donor is the annuitan in most cases.  

• Fixed income for life.

BENEFITS - DONOR:  

• Steady predictable annual income if the donor is the annuitant.

• Eligibility for a charitable income tax deduction for a portion of the contribution.

• Reduction and deferral of capital gains taxes if appreciated securities are contributed.

• Part of the annuity payments may be tax-free for a number of years.

BENEFITS - CHURCH / CHARITY

• A popular charitable giving tool will pay out the residual value after the lives of the annuitant(s). 

HOW MUCH GOES TO THE CHARITABLE BENEFICIARY?  

The value of the gift to your organization depends on a variety of factors:  (1) the size of the initial gift, (2) the underlying investments and asset allocation, (3) the rate paid to the annuitant(s) and (4) the number of years the investment needs to pay the annuitant(s).  A rule of thumb is that charities expect to receive about half of the initial value of the annuity.  However, it is often much more or much less. 

In the unusual event that the underlying investments are exhausted, the issuer continues to pay the guaranteed income from its asset pool.  If your organization is not the issuer, your organization does not absorb that loss.  In such a case no residual value remains for your charitable organization as beneficiary.

REPORTING:  Tax form 1099-R is provided to the donor by the issuing charity, which is denominational Foundation to specify how income payments should be reported.  Annual reporting of the current market value of the asset is provided to you

APPLICATIONS & BROCHURES:     Denominational foundations or financial service providers provide many resources including proposals, applications, descriptions, and in some cases brochures.  You also have access to customizable brochures and posters in your Navigator.