For many of us, the most significant gifts we will ever make are those given at the end of our life. Whether through estate giving, gift annuities, trusts or bequests, planned giving offers many ways for you to accomplish your final wishes while leaving a legacy of compassion.
One way individuals plan their giving is through gift annuities. But what are gift annuities?
Gift annuities - the basics
A charitable gift annuity is a contract, under which a charity, in return for a transfer of cash, marketable securities or other assets, agrees to pay a fixed amount of money to one or two individuals, for their lifetime.
The payments are fixed and unchanged for the term of the contract. A portion of the payments are considered to be a partial tax-free return of the donor’s gift, which are spread in equal payments over the life expectancy of the person or persons receiving payments.
The contribution (the gift), given irrevocably, becomes a part of the charity’s assets, and the payments are a general obligation of the charity. The charity’s entire assets back the annuity.
Gift annuity example
There are many different ways gift annuities can be structured. Here’s one example:
John and Sally Smith decide they would like to make a $25,000 gift to Tabitha but need the current income from that gift in retirement. They opt to establish an immediate charitable gift annuity. John is 76 and Sally is 73.
The Smith’s donate a cash gift of $25,000 to Tabitha to establish a charitable annuity. They receive a charitable deduction of $8,832.50* and will receive annual payments of $1,250, a portion of which is tax-free. In this case, $956.25 of the $1,250 payment will be tax-free for sixteen years. The remainder of the income will be taxed as ordinary income.
*This example is based on a year-end gift in 2012. Each annuity is individually calculated based on age, current rates and type of gift, such as cash, marketable securities or other appreciated property.
For more information about planned giving and gift annuities at Tabitha, contact our foundation!