Planned giving donors can choose from several different kinds of giving vehicles to leave their legacy with your organization. One of those vehicles is a charitable gift annuity.
While these different tools may sound complicated, you can learn the basics of these tools to help guide your donors. Charitable gift annuities are a dynamic planned gift vehicle that can provide a major gift to a nonprofit while also delivering peace of mind to your major donor.
What is a Charitable Gift Annuity?
A charitable gift annuity represents a planned giving option that provides income to both the donor and the organization. Your donor first makes a planned gift, which is then invested. This initial donation may be cash or assets like real estate. Often charitable gift annuities must be a gift of $5,000 or more.
The donor then enjoys tax-free or tax-deferred income as a percentage of the total planned gift they gave to your organization, because part of the annual income from the annuity is considered a charitable gift and is not taxed. A charitable gift annuity cannot be revoked or divided to benefit more than one nonprofit.
According to the American Council on Gift Annuities, the average payout rate for charitable gift annuities is 5.25 percent. However each individual’s payout rate will differ depending on the age of the donor. The goal is for nonprofits to retain a target of 50 percent of the original gift or more at the conclusion of the planned gift.
What are the Benefits of a Charitable Gift Annuity?
There are several benefits to a donor capable of making a charitable gift annuity gift.
- Donors will experience a protected income stream for the rest of their life
- Income stream may be tax-free or a reduced tax rate
- Donations can be cash, real estate, or other assets
- Appreciated assets enjoy reduced or zero capital gains tax
- Can be used to support a spouse or heir within an estate plan
- Significant donation to a nonprofit the donor cares about, ability to leave a legacy
Disadvantages of a Charitable Gift Annuity
A charitable gift annuity may not be right for everyone. Planned giving donors may have the following concerns about this planned giving vehicle:
- Income may still be taxable, versus other ways to give charitably
- Payout rates may not be sufficient to support a donor’s lifestyle
- Payments are irrevocable and fixed, do not adjust for inflation
- Cannot be applied to several different nonprofits or causes without setting up several individual annuities
Conclusion
Don’t let the seemingly complicated names for planned giving vehicles scare you away from this essential funding stream for your nonprofit goals! Tools like a charitable gift annuity are a great option for a planned donor looking to receive some income from their gift for themselves or their heirs. If you worry about communicating the particulars to donors, work with your organization’s lawyer or financial advisor to deliver terrific advice to your potential planned giving donors.
