A charitable gift annuity is a transaction wherein an individual ‘donates’ cash, marketable securities, and other sorts of assets to a charitable organization in exchange for fixed annuity payments to one or two annuitants. These annuitants may be anyone but is often the ‘donor’ themselves. The transferred cash will be readily accessible to the charity organization while the annuitant will have to wait for the payments. The payments will last a lifetime in most cases.
A charitable gift annuity is a planned gift on the behalf of the ‘donor’ and will be irrevocable once the agreement is in place. Annuity loans may not be possible so think hard about this.
Why Use Charitable Gift Annuities?
Looking at annuities pros and cons, a charitable gift annuity is a great way to put your money into a tax-free investment. It’s more like an immediate annuity than a variable annuity, though. So don’t get your hopes up about getting it to grow. After it has been given to a charitable organization, charitable gift annuity rates may apply which, of course, you must carefully consider.
While the income you or some other annuitant will receive will be fixed in amount, it will still be a wise decision to look at good rates for the payments. Charitable annuity rates will be determined by the age of the annuitant and the time upon which the gift was given. If there are two annuitants, often a spouse, different rates will apply. The rate will be set upon the initial agreement and will not be affected by future rate changes. Also, charities offer lower rates than other commercial insurance companies.
Remember that this is sort of a gift and not actually a business investment.
Giving a Charitable Annuity Gift
The most well-known kind of planned giving is the charitable gift annuity. Everyone is so very concerned with the public and with charities of all kinds that attention to this sort of investment is pretty widespread. However, there is another kind of charitable annuity called Charitable Annuity Trust. While they do sound similar, a charitable gift annuity is different from a charitable annuity trust. For one thing, a charitable gift annuity is a ‘contract’ with a charitable organization and not a ‘trust’.
A charitable annuity trust, on the other hand, is a transaction in which you put your money into a trust in order to provide income or annuity payment to yourself or to other chosen individuals during their lifetime or for a specific period only. The money is only distributed to one or more charities once the last living beneficiary of the trust has died. In the case of charitable annuity trusts, the money won’t be immediately accessible to the charitable organization.
Receiving an Annuity Gift
Another thing to put down under the pros column is that when one is on the receiving end of a charitable gift annuity, you’re pretty much guaranteed the fixed income. Unless the organization somehow fizzles out of existence, then they’re required to pay you the agreed amount for the rest of your life. If they don’t have the money to pay you from their annuity funds, then they have no choice but to dip into their own charity’s funds if they have to. The donor would be the primary creditor against the institution should they fail to hold up their end of the deal.