Charitable gift annuities are the gifts that keep on giving
When most people hear the word “annuity,” there is typically a negative connotation attached to this controversial product category. I call it the annuity gag reflex.
To the dismay of the ever vocal annuity haters, there is one type of annuity that is an undisputed “win-win” product whose benefits cannot be denied. It’s called a charitable gift annuity, or simply a gift annuity.
Gift annuities work like a single premium immediate annuity, SPIA, or a deferred income annuity (aka as a DIA or longevity annuity) by guaranteeing a lifetime income stream. Your guaranteed income can start immediately or at a specified time in the future. Gift Annuities can also be structured to payout single life, two lives in succession, or joint and survivor.
By choosing a gift annuity, you’re making a financial gift to your favorite charity. By entering into this contract with the charity or non profit, you receive a guaranteed income stream in return for a cash transfer or the approved transfer of other types of property. The person that gives the money or property is called the “donor,” and there can only be a maximum of two annuitants (people receiving payments). The donor is usually the annuitant as well, but not in every case.
American Council on Gift Annuities
These unique strategies are overseen and regulated by the American Council on Gift Annuities (ACGA). The ACGA was formed in 1927, and their primary role is to set Gift Annuity payout rates as well as promoting philanthropy. The ACGA’s informative website is the go-to resource for all things gift annuity.
Lifetime income with a tax benefit
What truly separates a gift annuity from a SPIA or DIA is the potential tax benefit you receive when placing your money with your charity or nonprofit of choice.
If you fund a gift annuity using cash, a portion of those income payments will be tax free. If you use real estate or appreciated securities that have been owned for a year or more, part of those guaranteed payments could be tax free as well. The issuing charity will issue a 1099-R form from the issuing charity specifying the tax-free portion of your payments.
It is important that you always work with a CPA or qualified tax adviser when choosing to implement a gift annuity, just to make sure that you are properly addressing every detail of your specific situation. The issuing charity representatives will also be able to help with any questions as well.
Charity keeps the money
Most people think that all annuities are the same, and have no idea that there are over 15 types. The most common annuity misconception is that you give the money to the evil annuity company, and when you die they keep all of it. Of course that blanket statement only applies to a “life-only” payout structure, but most people think this is a fact for all annuities. It is not, but gift annuities do put a positive light on the life-only choice.
Gift annuities are structured so that any unused money goes to the issuing charity or nonprofit.
No agents allowed
This is the part of gift annuities that everyone will embrace. No annuity agent can sell you this strategy. No bad chicken dinner seminars. No high-pressure sales tactics. No daily email blasts. Rejoice annuity buying nation!
Gift Annuities are purchased directly from the issuing charity or nonprofit organization.
Annuity hater challenge
If you need a lifetime income stream guarantee to compliment your Social Security or pension payment, I encourage you to contact your favorite charity, nonprofit organization, or your good ol’ alma mater to see what their gift annuities are paying. You might be able to check off two boxes (lifetime income and philanthropy) at the same time.
Charitable gift annuities are a shining beacon in the wild west of annuity sales, and I challenge all annuity haters to justify their broad brush negative categorization when it comes to gift annuities.
If you are shopping for annuity income guarantees, it might be wise to add this philanthropic annuity type to your list.
Originally published by MarketWatch 6.9.15 – http://www.marketwatch.com/story/gift-annuities-are-the-gifts-that-keep-on-giving-2015-06-09