How Does a Charitable Gift Annuity Work?

A Charitable Gift Annuity allows you to support a nonprofit organization while receiving a lifetime income stream.

You provide money to the charitable organization.

In return, the organization agrees to make contractual payments to you.

When the covered person or people die, the remaining money stays with the charity.

That makes a Charitable Gift Annuity very different from a traditional commercial annuity, but the lifetime income objective can be similar.

Key Takeaways

• Charitable Gift Annuities are offered by nonprofit organizations.
• They can provide lifetime income.
• The remaining money ultimately stays with the charity.
• CGAs may provide tax benefits.
• Tax questions should be reviewed with a CPA or qualified tax professional.
• A CGA can be compared with an Immediate Annuity when evaluating lifetime income.

Who Offers Charitable Gift Annuities?

Charitable Gift Annuities are commonly offered by nonprofit organizations.

That can include:

• universities
• hospitals
• charitable organizations
• cancer organizations
• humane societies
• other qualifying nonprofits

If there is an organization you already support, ask whether it offers a Charitable Gift Annuity program.

How the Basic Structure Works

The basic arrangement is simple.

You make a contribution to the nonprofit.

The nonprofit agrees to provide lifetime income.

When the lifetime income obligation ends, the remaining assets belong to the organization.

That allows you to combine charitable giving with retirement income.

How Long Do Payments Continue?

A Charitable Gift Annuity can be structured to provide income for life.

Depending on the organization and available options, some can also cover two lives.

That makes the structure somewhat similar to a lifetime income annuity issued by a life insurance company.

What Happens to the Money When You Die?

With a Charitable Gift Annuity, the remaining money generally stays with the nonprofit.

That is part of the charitable gift.

This differs from an Immediate Annuity that may be structured so remaining contractual value passes to beneficiaries.

The right structure depends on whether your priority is family legacy, charitable legacy, or a combination.

Charitable Gift Annuity vs. Immediate Annuity

If you are considering a CGA for lifetime income, compare it with a Single Premium Immediate Annuity.

A SPIA can also provide lifetime income.

The key difference is where the remaining money goes.

With the CGA, the charity benefits.

With a commercial annuity, beneficiary protections can generally be structured differently.

Tax Benefits

Charitable Gift Annuities can also offer tax advantages.

The exact treatment depends on the arrangement and your individual tax situation.

That is why you should work with:

• a CPA
• a tax attorney
• another qualified tax professional

The annuity agent should not be the final source for tax advice.

Why Financial Strength Still Matters

A lifetime payment is only useful if the organization can continue making it.

Before entering into a Charitable Gift Annuity, review the nonprofit's financial strength.

Ask for financial information.

Make sure the organization has the resources and structure to support the lifetime payment obligation.

Large Organizations May Have Established Programs

Universities, hospitals, and larger nonprofits often have dedicated charitable giving departments.

Those departments may already have established CGA programs.

That can make the process easier because there is usually someone specifically responsible for handling charitable gift arrangements.

Why Advisors May Not Talk About CGAs

Traditional agents and advisors generally do not sell Charitable Gift Annuities.

There is typically no commission involved.

That is one reason CGAs may receive less attention than commercial annuity products.

But if the structure fits your goals, it can still be worth evaluating.

CGAs Can Be Part of an Income Floor

Your retirement income floor may include several dependable sources.

For example:

• Social Security
• pensions
• Immediate Annuities
• Deferred Income Annuities
• QLACs
• Income Riders
• Charitable Gift Annuities

A CGA can potentially become one part of that larger retirement income strategy.

You Can Combine a CGA With Other Annuities

It does not have to be all or nothing.

Someone could use part of their money in a Charitable Gift Annuity and another portion in a traditional Immediate Annuity.

The important thing is comparing the income, tax impact, charitable objective, and beneficiary goals.

Compare the Numbers

If the nonprofit gives you a CGA quote, compare it with an Immediate Annuity quote.

Then consider the charitable and tax benefits alongside the income amount.

The highest payout does not necessarily determine the right answer if supporting the charity is one of your main objectives.

Where to Compare Lifetime Income

Use our annuity calculators to compare current Immediate Annuity quotes from multiple insurance companies.

That gives you a commercial lifetime income comparison to place alongside the Charitable Gift Annuity quote from the nonprofit.

The Bottom Line

A Charitable Gift Annuity allows you to provide money to a nonprofit in exchange for a contractual lifetime income stream.

When the income obligation ends, the remaining assets stay with the charity.

For someone who wants both lifetime income and a charitable legacy, it can be a useful strategy.

Compare the income with other annuity options, review the nonprofit's financial strength, and work with a qualified tax professional to understand the tax consequences.

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