Charitable Giving with Investment Benefits in Annuities
If you're looking to contribute a reasonably large sum of money to someone or some group, a charitable gift annuity may be the best option for you.
A charitable gift annuity combines the ability to contribute to an organization such as a church, hospital, charity, etc., and the ability to receive investment benefits. You would simply make a cash, securities, or property contribution to the organization in exchange for an annuity in your name for the rest of your life.
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The first distinct advantage offered by a gift annuity is that annual payments are guaranteed to you for a specific period of time, typically set up throughout your lifetime. But it can be longer. If you outlive your projected life expectancy (set up in the contract by an agency like the American Council on Gift Annuities), the payments will be taxed. However, you will receive the steady stream of income for a long period of time, which is especially beneficial during retirement.
The timeframe of the annuity’s compensation could be altered to fit a need, depending on a number of factors, such as your age and to whom the proceeds of the annuity will actually be going. You have some options when it comes to when you can be compensated with the annuity payments. One option is called an "immediate payment," in which you are paid immediately. The second payout option is the "deferred payout," in which you may elect to receive payments at some point in the future (usually 5 or more years later but no more than 20 years later).
Secondly, the rate of return for a charitable gift annuity is favorable compared to instruments like certificates of deposits or savings accounts. These rates can earn as high as 12 percent. Your age and your life expectancy typically determine this payout rate.
A third advantage for a gift annuity is the tax benefit(s). Initially, a deduction will be granted to the policyholder in the first year of the contribution. In addition, a portion of the annual annuity income is tax-free. Remember that these payments may last the remainder of your life. Also, if you donate property that appreciates in time, you gain a capital gains tax benefit.
Finally, making a contribution to an organization like a church, school, or charity is an act of kindness. That is why the organization is generous with the rates of return to the investor, especially since funding can be tight for some organizations. So if you're looking to give a gift to one of these types of groups, perhaps a charitable gift annuity is the best route for you.
There aren’t as many downfalls for a charitable gift annuity. First, as with most investments, there are tax implications. You will have to pay taxes on a portion of the payments. This tax is set forth in the contract.
The second question that must be asked is whether the charity or organization will be around for the long haul, especially since you have made a life-long commitment, or more importantly, they have made a life-long commitment to you.
The Salvation Army is an organization that has been granting charitable gift annuities since January 1941 and has never missed a payment. One advantage of contributing to the Salvation Army is the Annuity Reserve account they have in order to cover the payout commitments they undertake. Because the New York State Insurance Department backs them, they are required to maintain the account.
I contacted Immediate Annuities.com to buy one of my immediate annuities. They were prompt, very responsive, paid attention to detail, understood my objectives, and were superb when it came to staying on top of seeing the funds transfer and issue of new policy documents through to completion.
Another such group that welcomes gift annuities is "Focus on the Family", a non-profit organization that deals with reaching out (via radio, magazine, and worldwide ministries) globally to try to heal and build households. You will receive fixed payments for the rest of his/her life in exchange for the gift. Depending on your age, the payout rate of return can be highly attractive.
So, how do you know if a charitable gift annuity is the right investment or strategy for you? If you wish to donate to a charity but are concerned about maintaining your standard of living, especially during your retirement period when your income tends to be more fixed. Hence, you may not make large gifts to charities until your death. So, the charitable gift annuity is an option you can utilize in order to make the contribution while being able to enjoy the benefits of the investment.
They can provide to both a donor and a charity many important financial planning advantages. You can increase your income while receiving significant tax benefits. The charitable gift annuity is a classic "win-win" situation to both you and the charity alike.