Charitable Gift Annuity: How Payments Are Calculated, Part 2

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The two main factors to keep in mind when helping donors consider a CGA are 1) age and 2) number of annuitants.

Expressed as equations, they look like this:

1) O + F + L = B  

The Older the beneficiaries/annuitants, and the Fewer beneficiaries or annuitants, and the Lower the payout rate, the Bigger the overall tax benefits.

Benefactors over the age of 75 generally prefer charitable gift annuities. CGA payments range from approximately 4.5% to 9%  (based on the age(s) of the annuitant(s)).

2) Y + M + H = S 

The Younger the beneficiaries/annuitants, and the More beneficiaries or annuitants, and the Higher the payout rate, the Smaller the overall tax benefits.

Benefactors under the age of 70 generally prefer charitable remainder trusts (CRTs), aka unitrusts and annuity trusts. The annual distribution from a CRT is generally in the 5% to 7% range (minimum required is 5%).

Benefactors in that sweet spot between the ages of 70 and 75 have more to think about when deciding between a CGA and a CRT. Depending on their objectives (eg, the largest possible charitable deduction versus the greatest possible amount of income paid out) and their risk tolerance level, one of the LIG vehicles may be more attractive than the others, so being able to actively break down the benefits of the different possibilities for them is hugely to your advantage.


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When a Charitable Gift Annuity (CGA) is established, what are the critical factors in calculating the annuity payment?