Charitable Gift Annuity: Who, Why, When

WHO: Annuitants aged 75 or older. Generally speaking, benefactors choosing a CGA for annuitants aged 75 and older find a CGA significantly more appealing than a charitable trust. Those between the ages of 70 and 75 need a clear explanation of the differences between a CGA and a charitable trust so they can make an informed decision when making their choice.

Most often, benefactors under the age of 70 will choose a charitable trust instead of a CGA. But every situation is unique.

CGA’s are especially appealing to benefactors who are:

1. Willing to make a gift of cash or marketable securities, and
2. Wanting to receive payments promised by the charity for as long as the annuitant(s) live.

As for point 2, a CGA is a uniquely strong way to assure that the annuitant(s) receive a steady income that will not expire while they're alive. As for point 1, cash and securities are the two kinds of assets that are straightforward to directly convert into a CGA. Only on an exception basis should your organization consider helping a benefactor fund a gift annuity with real estate or other asset that's difficult to convert. 

WHEN: A CGA is an extremely useful way for a benefactor to make a gift to your organization and at the same time provide either immediate or deferred annuity payments to other individuals—frequently elderly parents. Spouses and other family members are also common beneficiaries. 

Charitable gift annuities (CGA’s) are especially appealing to benefactors willing to make a gift of cash or marketable securities and desiring to receive payments promised by the charity for as long as the beneficiaries live.

The older the beneficiary, the higher the applicable annuity rate, and the larger the charitable deduction, and a greater portion of the annual income is tax free.

WHY: The risk factor for a CGA is quite low for the benefactor because the annuity is an obligation of your organization and the amount of income is fixed for the life of the annuitant(s). Other reasons why a donor might find a CGA advantageous include:

1. A CGA is an excellent way to increase cash flow and transfer management responsibilities for gifted property.
2. A gift of appreciated securities is often appealing because the tax on the capital gain is reduced and spread out over the life time of the annuitants. (This is the case if it's the benefactor or benefactor's spouse who receive the annuity payments.)
3. Reducing taxes may be an added incentive for benefactors as a portion of the value qualifies as an itemized charitable deduction.
4. Deferred payment charitable gift annuities (DPCGAs) may be attractive for younger benefactors to make a charitable gift to supplement their retirement. You can find details about the DPCGA here.

Another variation of the CGA is the Flexible DPCGA, which may appeal to your benefactor. In this special annuity arrangement, the annuitant(s) may elect to begin receiving payments on any one of a range of future dates. (The possible starting dates and the corresponding payment amounts must be listed in the agreement.) The older the annuitants are when they begin receiving payments, the higher the payout rate will be.