A Charitable Gift Annuity donated to a qualified 501(c)(3) charity creates an immediate tax deduction for a portion of the contribution and a fixed income stream from the charity for as long as the grantor lives. With the minimum contribution usually $5,000, a CGA is accessible for many people seeking to create a legacy and lower taxes, according to a recent article, “How about a gift that pays you back?” from Los Angeles Daily News.
Who could benefit from a CGA?
- A person who wants to give generously but is concerned about having enough income for the future.
- Someone who needs a last-minute tax deduction and has already reached contribution limits for an IRA or 401(k) plan.
- A philanthropic-minded person who wants to leave a large amount or all of their estate to charity and wishes to have the business end of their giving done all at once.
- A donor who wants to avoid or defer capital gains tax on an asset they want to donate to charity.
An estate planning attorney should be involved in creating and executing the CGA to ensure that all requirements are met so that the CGA achieves the desired results and works in tandem with the rest of the estate plan. The estate planning attorney will set up the CGA. You then donate the asset to the charity. The gift is set aside and invested by the charity. You receive fixed monthly or quarterly payments as long as you are living. After your death, the charity receives the funds remaining in the account.
The income tax deduction is the contribution minus the present value of the payments to the donor. The estate planning attorney can make the calculations. Current annuity rates range from 4.6 to 10.1% for 50 and older, based mainly on age. Let’s say someone made a $100,000 contribution. They would receive $4,600 to $10,000 a year from the charity.
The amount received never fluctuates and is fixed so it won’t adjust for inflation. However, it is secured by the charitable organization’s assets and continues at the stated rate, no matter how the annuity investments perform.
Another example: a couple in their 70s funds a Charitable Gift Annuity with $50,000 of appreciated stock originally purchased for $20,000. They will receive an income tax charitable deduction of $17,584 and a payment of 6% or $3,000 a year for the rest of their lives.
This kind of donation is advantageous to both the donor and the nonprofit. The charity needs to be a qualified 501(c)(3), and it’s best to pick a well-established charity with a Charitable Gift Annuity program in place. Your estate planning attorney will be able to review the program to be sure that it aligns with your overall estate plan.
Reference: Los Angeles Daily News (Dec. 29, 2024) “How about a gift that pays you back?”
