Charitable Gift Annuity (CGA)

Put simply, a Charitable Gift Annuity (CGA) is a great way for an older donor to accomplish 5 goals:

1. Make a major gift
2. Receive considerable tax benefits
3. Receive annuity payments for life or lives
4. Likely remove an asset from their estate, and
5. Maintain a connection to your organization and the cause you promote.

Here's how it works:

Via a simple contract (1+ pages), the donor makes an irrevocable gift of assets—either securities or cash—to your organization, which agrees to pay a fixed sum of money annually for the lifetimes of one or a maximum of two beneficiaries.

If the annuity is funded with cash, the annual distributions will be partially taxed at ordinary income tax rates, and a portion of the payments will be tax-free. (The tax-free portion continues for the life expectancy of the annuitants.)

If the annuity is funded with an appreciated asset, the annual distributions will be taxed:

1. Partly as ordinary income
2. Partly at capital gain tax rates, and
3. Partly tax free.

In the year the gift is made the donor is then able to claim as a charitable income tax deduction for that portion of the annuity that is considered a gift.

Keep in mind, the older (and fewer) the annuitant(s), the higher the fixed payment rate will be. Similarly, the older and fewer the annuitant(s), the larger the charitable deduction the donor is able to take for the gift.

Another advantage to the donor: the CGA is likely to reduce the donor's estate tax liability.

Honestly, those are the main points. In the realm of major gifts, the CGA is straightforward in terms of understanding the advantages to both donor and charity, and it's similarly uncomplicated to execute.

IMPORTANT NOTE: The income interest and remainder interest values must be calculated using the federal discount rate for the month in which the annuity is created or any of the prior two months. Please check with your advisor or the ACGA to ensure you're using the applicable rate.

For more details on setting up and accepting CGAs on behalf of your organization, please consult the pages in this section:

1. Who, Why, When. The risk factor for a CGA is quite low for the benefactor because the annuity is promised by your organization and the amount of income is fixed for the life of the annuitant(s).
2. How It Works. While executing a CGA may be a relatively straightforward endeavor, there are a number of considerations that must be clarified and understood up-front by all parties involved.
3. Assets That Fund It. We break down the ideal assets a donor can use to fund CGAs.
4. Tax Issues. A straightforward list of the different factors for your consideration in the CGA planning stages.
5. The Deferred Payment CGA (DPCGA). A DPCGA offers potentially significant tax benefits to the donor.
6. How to Accept. Once you're in conversation with a donor about supporting your organization through a CGA, there are several considerations you need to have in mind as you go forward in your communications.

NOTE: As a reminder, this section of the Gift Planning Field Guide is open to nonmembers. If you're a visitor, welcome! We invite you to take a look.