Charitable Gift Annuity - Explained
What is a Charitable Gift Annuity?
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Table of ContentsCharitable Gift Annuity DefinitionA Little More on What is a Charitable Gift AnnuityCharitable Gift Annuity RegulationAcademic Research
Back to: INHERITANCE, ESTATES, & TRUSTS
What is a Charitable Gift Annuity?
A charitable gift annuity is a contract or an agreement between an individual and a charity, where such individual transfers assets to a charity in return for a partial income tax deduction and a regular lifetime income sizable to the asset. Like other life annuities, when the receiver of the annuity (annuitant) dies, the annuity payments will be stopped. On the contrary, in the case of a traditional annuity, the charity retains the remaining funds as a gift or a form of compensation. The goal of every charitable annuity is to be of crucial benefit to a charity.
How Does a Charitable Gift Annuity Work?
Charitable gift annuities are a means of fundraising or voluntary giving. The annuities or donors provide a charitable donation to a charity and in return, the charity offers an income tax deduction and a regular lifetime income to the donor or other beneficiaries. The charity limits this tax deduction to the amount contributed using the Internal Revenue Service (IRS) stipulated parameters. A charitable gift annuity is mostly funded with cash, marketable securities or other assets. The charitable account can be funded with as little as $5,000 as a first payment. Many tertiary schools and nongovernmental organizations offer charitable gift annuities. Payment amounts are affected by factors such as the age of the annuitant. The monthly payments will either be much or less depending on the age bracket of the annuitant. The older, the smaller or larger. The primary reason for a charitable gift annuity is to benefit the charity, the payment might be lower compared to a traditional annuity where the highest possible retirement income is feasible. In a typical charitable gift annuity, the amount paid out is not restricted to contributed assets, the calculation stipulates that a large amount of money paid out should be reserved for the charity after the beneficiary's death. The money paid an annuitant is considered a partial tax-free return of the donor's gift. The charity determines what is being paid, not the contributed assets.
Charitable Gift Annuity Regulation
Many states have rules and regulations governing charitable gift annuities, it is imperative for charities and prospective annuities to understand and comply with such rules as applicable in their state. A charity, for- example, must have reserves to meet up payment obligations as outlined in the state's insurance and financial securities laws. One of the governing regulations states that residue money after satisfying all payment obligations must be at least 50% of the initial gift amount if the annuitant lives as long as their life expectancy. Most charities that offer charitable gift annuities often use the gift annuities rates given by the American Council on Gift Annuities. An Internal Revenue Service (IRS) declaration concerning charitable gift annuities may be found here.
- Declaration of Trust
- Uniform Gifts for Minors Act
- Acceptance of Office by Trustee
- Beneficial Interest
- Asset Protection Trust
- Bare Trust
- Blind Trust
- Charitable Lead Trust
- Charitable Remainder Trust
- Charitable Remainder Annuity Trust
- Charitable Gift Annuity
- Credit Shelter Trust
- Discretionary Trust
- Generation Skipping Trust
- Grantor Trust Rules
- Living Trust
- Inter Vivos Trust
- Revocable Trust
- Irrevocable Trust
- Irrevocable Income-Only Trust
- Qualified Domestic Trust (QDOT)
- Qualified Terminal Interest Protection Trust (QTIP)