charitable gift annuities
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Charitable Gift Annuities
Presented by
Cathy R. Sheffieldfor the
Fort Worth Metro Chapter AFPJuly 8, 2013
Remove the Fear of Implementing a Program What are CGAs Types of CGAs Benefits/Risks to Donors & Charities Setting Up a Program
Requirements Administration Other logistics
Today’s Goal
The American Bible Society is credited for pioneering the first gift annuity program in the
United States beginning in 1831 when a merchant in Boston first donated a gift of
money to a charity in exchange for a flow of income.*
*www.americanbible.org
Gift Annuities
Charitable Gift Annuities
According to the ACGA,
4,000 + organizations and institutions
now issue charitable gift annuities.
Identify ways donors can make gifts that are
completed today with retained income and/or
result in a gift at the end of their lifetime.
The goal should be to find the most effective
ways to make larger gifts in today’s environment.
Charitable Gift Annuities
Charitable Gift Annuities
Hybrid: part charitable gift and part annuity
AKA: split interest gift
A gift annuity is a contract (not a trust) under which a charity, in return for a transfer
of cash, marketable securities, or another asset, agrees to pay a fixed amount of
money (payment) to one or more
individuals, for their lifetimes.
Charitable Gift Annuities
Annuitant – Individual(s) to whom the annuity is paid
Annuity –Fixed stream of income payable in annual or more frequent installments over the life/lives of the annuitants
Terminology
The annuity payments are not considered
“income”, for a portion of the payments are considered to be a partial tax-free
return of the donor’s gift
Charitable Gift Annuities
Irrevocable gift becomes part of the charity’s assets
Payments are a general obligation of the charity
Annuity is backed by charity’s entire assets, not just property contributed
Annuity payments continue for the life/lives of the annuitants - not ONLY for as long as the asset remains in the Gift Annuity Fund ! !
Charitable Gift Annuities
While the charity may spend a portion of the contribution immediately, it must maintain sufficient reserves to meet annuity obligations and satisfy regulatory requirements of each state in which the charity issues gift annuities
Charity should track the ongoing value of each gift within its gift annuity fund, so it can withdraw the correct residuum amount (market value not the book value of the residuum balance)
Charitable Gift Annuities
Common Types
Immediate Gift Annuity
Deferred Gift Annuity
Flexible Gift Annuity
Charitable Gift Annuities
Immediate Gift Annuity
Payments begin immediately
Payments are monthly, quarterly, semi-annually or annually
Charitable Gift Annuities
Deferred Gift Annuity Payments begin in the future, the date chosen
by the donor, which must be MORE than one year after the date of the contribution
Payments can be made monthly, quarterly, semi-annually or annually
Charitable Gift Annuities
Flexible Gift Annuity DN does not have to choose starting date at the
time of the contribution The older the annuitant when the payments start,
the larger the payments Donor chooses initial “target date” for the payments
to start from a range of payouts differing fixed payment amounts and differing starting dates
The charitable deduction is fixed – the annuity rate for each starting date changes (lower if starting date is early – higher if starting date is later)
Charitable Gift Annuities
Characteristics and Advantages: Inexpensive to establish – not complicated Provides an income stream for life/lives Immediate income tax charitable deduction based on
age, payout rate, earnings assumptions and IRS discount rate
Prospects are generally older and may have less wealth Attractive in times of lower interest rates and lower
inflation rates
Charitable Gift Annuities
Tax Advantages/Consequences
Charitable deduction - The portion of the transaction that is considered a gift is eligible to be considered a charitable contribution
Income tax savings - Part of the annual amount the annuitant receives is considered a tax-free return of capital, excluding it from gross income until they reach their life expectancy
Estate tax savings - If the donor and their spouse are the only beneficiaries, the value of the annuity may not be taxed in their estates - It may qualify as a marital deduction
Tax Advantages/Consequences
Up to 90% of gifts will be funded with cash or long-term appreciated securities
Federal income tax deduction the donor is eligible to claim falls under the same contribution ceilings as for an outright gift
Cash - deduct up to 50% of AGI, 5-yr carry over period Long-term appreciated property – deduct up to 30% of
AGI, 5-yr carry over period
Tax Advantages/Consequences
Charitable gift annuity tax consequence calculations require the following information:
A portion of each annuity is included in the recipient’s gross incomeo Ordinary incomeo Capital gaino Cost Basis
Tax Advantages/Consequences
o Dateo FMVo Cost basis o Birthdates o IRS discount rateo Payment schedule
o Timing of the annuity payments
o How capital gains are to be paido Partial payments
Property Appropriate For Annuities: Cash (most common asset)
Particularly when CDs come due
Appreciated securities Avoid immediate capital gain on the conversion
Real estate (charity beware!) Be mindful that some states prohibit donors from using real
property for a gift annuity
Tax Advantages/Consequences
The tax implications of a gift annuity change depending on: Who owns the gift property Who is the annuitant(s) If the donor uses appreciated, long-term property what
are the capital gain implications? What is the donor’s gift tax liability, if any? The sequence of the annuitants
Tax Advantages/Consequences
Ownership of property: DonorAnnuitant: Donor
Ownership of property: DonorAnnuitant: Spouse
Ownership of property: DonorAnnuitant: Donor, then spouse
Ownership of property: DonorAnnuitant: Spouse, then Donor
Ownership of property: DonorAnnuitant: non-spouse
Ownership of property: DonorAnnuitant: Donor, then non-
spouse
Ownership of property: DonorAnnuitant: non-spouse, then
donor
Ownership of property: Donor and spouseAnnuitant: Donor
Ownership of property: Donor and spouseAnnuitant: Donor and spouse –
Joint and survivor
Ownership of property: Donor and spouseAnnuitant: Someone else
Ownership of property: Donor and spouseAnnuitant: Donor, then non-spouse
Ownership of property: Donor and non-spouseAnnuitant: Donor and non-spouse,
joint and survivor
Ownership of property: Donor and non-spouseAnnuitant: Donor
Ownership of property: Donor and non-spouseAnnuitant: Someone else
Donor/Annuitant Combinations for Tax Consideration
American Council on Gift Annuities:
www.acga-web.org
ACGA for suggested rates: Gift should result in a significant residuum with risk
to charity minimal
Rates should be lower than commercial rates
Rates should be high enough to attract donors
ACGA rates should have credibility so that most
charities will continue to follow them
American Council on Gift Annuities
Charitable residuum will be 50% Life expectancies are based on the Annuity 2000 Tables Charities expenses for investing the annuity reserves
and administering the annuities are not to exceed 1% Total return on annuity reserves for immediate gift
annuities is 4.25%
ACGA Rate Assumptions
Age Annuity Rate
65 4.7
70 5.1
75 5.8
80 6.8
85 7.8
90 9.0
ACGA Single Life
Younger Age Older Age Annuity Rate
65 66-68 4.3
65 73-95+ 4.5
70 75-78 4.8
70 79-95+ 4.9
75 76-77 5.1
75 82-83 5.5
80 85 6.1
ACGA Two Life Rates
The Gift Annuity Contract
ContractRequired for all gift annuitiesSome states require unique, state mandated disclosure
languagePlanned giving software provides contract agreement
samples (PG Calc, Crescendo, etc)Consider the primary legal residence (state) where your
donor (and/or annuitant) resides
The Gift Annuity Contract
ContractTypically a simple, 1 page document
Prepare 2 original documents for signatureDonor receives a signed original
Charity receives a signed original
Recommend professional advisor and family review
The Gift Annuity Contract
Required Donor InformationName of donor(s)Legal address of the donor(s)Name of the annuitant(s)Legal address of the annuitant(s)Date of birth of the annuitant(s)Social Security number for each annuitant
Consider a pre-CGA Application Form
The Gift Annuity Contract
Required Donor InformationSequence of annuity payments
oConsecutive: A for life, then B, if B survives A B for life, then A, if A survives B
oConcurrent and Consecutive: A and B jointly, then survivor
Cost basisHolding period for gifts of capital assets Payment instructionsGift restrictionsRight to revoke annuity interest
The Gift Annuity Contract
Sample Charitable Gift Annuity ContractTwo Life - Immediate Payments
Two Life – Donors are the Annuitants This Agreement is made between John Doe and Jane Doe (Donors), 123 Main Street, Fort Worth, Texas 76104 and Charity USA (Charity), 456 Broadway Ave., Fort Worth, Texas 76109.
Transfer of Property by DonorCharity certifies that the Donors, as an evidence of their desire to support the work of Charity and to make a charitable gift, on [date of gift] contributed to Charity the property the fair market value of which is $100,000.00.
Payment of AnnuityIn consideration of the property transferred by the Donors, Charity shall pay an annual annuity of $6,700.00 from the date of this Agreement and shall pay such amount to the Donors so long as they are living.
Payment Dates; First InstallmentThe annuity shall be paid in quarterly installments of $1,675.00. The first installment shall be payable on March 15. Subsequent installments continuing every quarter on the 15th of the month shall be in the amount of $1,675.
Birth Date of DonorsThe John Doe’s date of birth is December 27, 1933 and Jane Doe’s date of birth is June 12, 1943.
Irrevocability; Non-assignability; TerminationThis annuity is irrevocable and non-assignable, except that it may be assigned to the charity. The charity’s obligation under this Agreement shall terminate with the regular payment preceding the Donors’ death.
Uses and Purposes of GiftUpon charity's satisfaction of its obligation under this Agreement, an amount equal to the residuum of the gift shall be used by Charity for ____________.
Entire Agreement; Governing LawThis Agreement, together with Schedule A attached hereto, constitutes the entire agreement of the parties. This Agreement shall be governed by the laws of the state of state.
Disclosure Statement
Donor has received and read the attached disclosure statement pursuant to The Philanthropy Protection Act of 1995.
This charitable gift annuity is not insurance under the laws of the state of Texas and is not subject to regulation by the Texas Department of Insurance or protected by a guaranty association affiliated with the Department.
This Agreement is effective as of [date of gift].
___________________ ___________________Donor Charity Representative
___________________ ___________________Date Date
Charitable Gift Annuity John and Jane Doe
and Charity USA
Schedule A
Check # 2567 - $100,000
State Regulation of CGAs
Schedule A
Texas RegulationUnder Chapter 102, Texas Insurance Code, charitable gift annuities are exempt from insurance regulation.
To qualify for the exemption, the charity must have been in operation for more than 3 years and must have $100,000 in available unrestricted assets.
Charity MUST file notice with TX Dept of Insurance
State Regulation of CGAs
Department of Insurance is required to certify:
The nonprofit and tax exempt status The annuities to be offered are charitable gift annuities That the annuity agreements will include the required disclosure language
State Regulation of CGAs
Texas Regulation
A disclosure statement must be included in each gift annuity agreement.
Suggested language:
This charitable gift annuity is not insurance under the laws of the state of Texas and is not subject to regulation by the Texas Department of Insurance or protected by a guaranty association affiliated with the Department.
State Regulation of CGAs
Texas RegulationFailure to comply permits a fine of up to $1,000 for each
annuity issued during the time the organization is not in compliance.
For more information contact:Mrs. Shaun Craig, Insurance Specialist
Life/Health Division - Life, Annuity & Credit SectionTexas Department of Insurance
MC-106-1EP.O. Box 149104
Austin, TX 78714-9104(512) 322-3595 Email: Shaun.Craig@tdi.state.tx.us
State Regulation of CGAs
Administration
Administration
Manage gift annuities in house. Work with your business/finance office You will want administration software Deliver annuity checks on date due Reclaim if over paid Form 1099-R (by Jan. 31 to donor and Feb 28 to
the IRS) Outsource management of gift annuities.
Contract with a financial institution
Target Audience: Consistent donors Board members Major donors Volunteers Individuals with appreciated dividend paying
assets who like/need income
Marketing Charitable Gift Annuities
Sample of Online Resources:www.acga-web.org
www.pppnet.org
www.pgdc.com
www.stelter.com
www.plannedgivingcompany.com
www.crescendosoft.com
www.virtualgiving.com
www.pgcalc.com
Charitable Gift Annuities
Questions?
Feel free to contact me:
Cathy.Sheffield@BaylorHealth.edu
817-927-6221
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