Charitable Gift Annuities
Immediate Payment and Deferred Payment
A charitable gift annuity is a simple contract providing for our payment to you (and an optional second beneficiary) of a fixed amount for life in return for your contribution. The gift annuity offers you the assurance of payments that will not fluctuate, and that are secured by all the assets of one of the tax-exempt organizations*. And the minimum gift to establish a charitable gift annuity is low — a contribution of $5,000 or more will enable you to share in the benefits of this program.
A charitable gift annuity offers you three distinct tax benefits:
- You will receive an income-tax charitable deduction for your gift annuity, based on the full value of the assets you contribute minus the present value of the life-income interest you retain (see the box below for more details).
- If you fund your charitable gift annuity with appreciated securities, no upfront capital gains tax is payable. Only a portion of your capital gain will be reportable, and the tax will be spread over your annuity payments.
- Part of each annuity payment will be considered the tax-free return of your principal. This effectively increases the cash flow from your gift annuity, and is not available with other types of life-income gifts.
(The IRS provides that the capital gain and tax-free-payment benefits are in effect during your life expectancy - if you live beyond your life expectancy, the entire annuity payment will be taxed as ordinary income.)
Your gift annuity can start paying you once you make your contribution (an immediate-payment gift annuity), or payments can commence at a later date selected by you (a deferred gift annuity). Deferral allows us to offer you a higher annuity rate and gives you a larger charitable deduction.
Many younger donors create a series of deferred gift annuities over multiple years, jointly timed to begin making payments when they retire. To fund their gifts, they use assets they've already designated for retirement savings. Their deferred gift annuities give them an income tax deduction when they most need it, and an additional source of cash during their retirement years.
Example**
| Comparison: Gift Annuity and Deferred Gift Annuity | |||
| Assumptions: Benefactors aged 70 and 68, Contribute securities worth $20,000 | |||
| Options |
Gift Annuity paying income immediately |
Deferred Gift Annuity beginning income in 5 years |
Deferred Gift Annuity beginning income in 10 years |
| Contribution | $20,000 | $20,000 | $20,000 |
| Annuity Rate | 5.8% | 7.8% | 10.9% |
| Annual Payment (fixed) | $1,160 | $1,560 | $2,180 |
| Charitable Deduction | $6,156 | $8,221 | $10,676 |
| This example is based on a Federal Discount Rate of 5.0%. | |||
*BJU does not qualify as a 501(c)(3) tax-exempt organization, and gifts to it may not be deducted for federal income, gift, or estate tax purposes. The BJU M&G, MSF, HAF, DNSF, S&E Endowment Fund and GFA are all 501(c)(3) tax-exempt organizations, and gifts to these organizations may be deducted for federal income, gift, or estate tax purposes.
**This example is based on a factor that changes monthly. Contact our office for a personal illustration based on the latest rates.
Planned Giving content © 2006 VirtualGiving
