CGAs: 10 Things You Must Know


Let's take a look at 10 things you need to know in order to have a confident understanding of CGAs.


1. CGA: How It Works

Please make sure you review CGA: How It Works in the Gift Planning Field Guide

2. The nature of the contract

A CGA is a contract between the donor and your institution. It's an obligation of your institution, and consequently it's backed by the assets of your institution. However, you should not say the contract is "guaranteed" as there are likely other creditors that would be closer to the front of the line in the case of a dissolution.

3. A CGA is irrevocable 

Once the contract is initiated, the annuity rate can never be adjusted.

4. Words to avoid

You should not use these terms or words when describing a CGA:

  • Investment. The donor is making a gift (even though they are retaining some rights). There is little question the donor could generate a greater return on any money they give in exchange for a CGA.
  • Income payment. Rather, it is an annuity payment. The tax-free portion of the annuity payment is an assumed return of principle -- a return of some of the money originally given in exchange for the annuity.
  • Yield. Rate of return. Tax-free income. Again, a CGA is a gift, not an investment.
  • Recommended rate. The ACGA suggests rates -- it does not "recommend" or in any way attempt to enforce the use of its rates.

5. Either one or two beneficiaries

There cannot be more than two beneficiaries of the annuity payments. Typically, the payments continue as long as either of the beneficiaries are alive.

6. How higher annuity rates are calculated

Because the suggested annuity rate is partially based on age, the older the annuitant(s), the higher the suggested rate will be. And, naturally, fewer annuitants (i.e., one instead of two) also mean the suggested rate will be higher. It's always assumed that the life expectancy of two people is longer than that of one person.

7. Donors who use CGAs tend to like them

Roughly 50% of donors who enter into a CGA will end up doing so more than once. And 30% of those with annuities subsequently increase their annual giving.

8. A way for adult children to give back

It's becoming more and more common for a child to enter into a CGA with a parent as the beneficiary.

9. Two means of funding: Cash or securities

A CGA is typically funded with cash, and sometimes with an appreciated security. Keep in mind that a CGA funded with securities requires that a portion of the capital gains of the appreciated asset will be recaptured and taxed as such in the annuity payments.

10. Benefits of a Flexible Deferred Payment Gift Annuity (DPCGA)

Flexible DPCGAs are becoming a popular way for donors with 10 to 15 more years of gainful employment ahead of them to make a gift that will help them supplement their retirement funds. The "flexible" part of the annuity refers to the ability to begin receiving the payments at a time in the future when they become needed.