Gift Annuities

  • Gift annuities are the most popular life income gift. And among the easiest for nonprofits to administer.  Generally, legal costs are minimal because the agreement is not complicated.

  • The annuity replaces and, in many cases, actually increases income a donor was receiving from the assets used to fund the annuity.

  • The donor receives a charitable income tax deduction based on the fair market value of the assets contributed minus the present value of the annuity interest retained.

  • If the donor funds the gift annuity with appreciated securities, no upfront capital gains tax is due on the transfer.  Thus, the entire amount of the gift can be put to work to generate the annuity payments.

  • Although part of each payment is taxed as ordinary income, part is treated as the tax-free return of the donor’s principal; and, if the annuity is funded with appreciated securities, a portion is taxed at beneficial capital gain rates.  These tax savings plus the tax deduction increase the effective yield of a gift annuity.

  • Because the payment is fixed, younger annuitants may see the “buying power” of the payments erode over time.

  • Annuity payments are fixed, and run for the lifetime(s) of a maximum of two beneficiaries.  After the death of the annuitant(s), the balance remaining in the annuity account is used by your organization for the purpose designated by the donor when the contact was signed.