PG 101: The Charitable Gift Annuity
If you have made a gift to any charitable organization in the last fifteen years – a university, a hospital foundation, charities that seek cures for disease – then you have probably received information and solicitations to consider a Charitable Gift Annuity. This popular gift arrangement requires an up-front gift to the organization in return for fixed payments to the giver for life.
Hundreds of United Methodists in Missouri have created gift annuities to benefit a local church or other favorite ministries. Nevertheless, many church members remain unaware that this option exists or uncertain how it works.
Something like a gift annuity was created in the US as early as the 1830s for the benefit of Yale College. In the 1920s, the American Bible Society conducted a very successful national gift annuity campaign that popularized the arrangement. The Missouri United Methodist Foundation began administering gift annuities in the early 1990s and currently has 126 active gift annuities valued at over $3.25 million.
How It Works
The primary purpose of a gift annuity is to make a gift to charity – but with the added helpful feature of fixed payments for life. The terms of a gift annuity are spelled out in a simple contract between the donor and the charity. Based on the age of the donor(s) at the time of the gift, the charity agrees to pay a fixed annual amount to the donor(s) for life. This amount is calculated as a percentage of the original gift amount and does not change for the life of the annuitant(s).
Gift annuity rates are determined and published by the American Council on Gift Annuities, a national association of charities. The goal of the rate calculation is to allow at least half of the original gift amount to be available for use by the charity when the annuity obligation ends.
When the annuity terminates, the gift remainder is distributed to the church or charity designated by the donor(s). Some donors will instruct that the gift become a permanent memorial endowment at the Foundation – in turn, providing sustaining annual support for church or charity.
Donor Age = 80
Gift Amount = $10,000 (cash/stock/property; a portion is tax deductible)
Annuity Rate = 6.8% = $680 annual payment to donor (a portion is tax-free)