A charitable gift annuity is an agreement between a donor and a charitable organization in which the donor makes a donation, and in return the charitable organization provides them with a regular stream of payments for life.
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How to Cite Annuity.org's ArticleAPA Annuity.org (2024, August 8). Charitable Gift Annuity. Retrieved September 18, 2024, from https://www.annuity.org/annuities/types/charitable-gift/
MLA "Charitable Gift Annuity." Annuity.org, 8 Aug 2024, https://www.annuity.org/annuities/types/charitable-gift/.
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Charities and donors can both benefit from using a form of planned giving called a charitable gift annuity. Charitable gift annuities are similar to other annuities in that a lump sum is exchanged in return for a series of payments.
However, instead of involving an insurance company, there is a contractual agreement between the donor and nonprofit that manages the charitable gift annuity. The funds are invested, and while the donor is living they receive payments from the charitable organization where they established the charitable gift annuity. Upon their death, their chosen charity receives the remaining annuity balance.
There are some potential advantages to charitable gift annuities over a more traditional donation.
Gift annuities are one form of planned giving (a way donors can give major gifts such as cash, property or assets to nonprofits and charities).
Other forms of planned giving are:
Chip Stapleton FINRA Series 7 and Series 66 License HolderCGAs could be very beneficial to closely held businesses owners. Generally, the owners have significant capital appreciation in their business, and selling could create a sizable capital gain.
Chip Stapleton is a financial advisor who has spent the past several years of his career working primarily in financial planning and wealth management. He is a FINRA Series 7 and Series 66 license holder and passed the CFA Level II exam in 2022.
Religious, charitable and educational organizations are all 501(c)(3) organizations that can use CGAs. While not all nonprofit charities accept these gifts, many do.
The Internal Revenue Service defines 501(c)(3) organizations as groups that are “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition and preventing cruelty to children or animals.” By the same definition, 501(c)(3) organizations cannot exist for the primary benefit of private shareholders. To comply with the tax code, charities send CGA annuitants IRS Form 1099-R and designate which contributions (whether cash or property) are taxable, nontaxable or capital gain.
