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Introduction

A gift annuity is a popular planned giving tool. They have been around for over 100 years. They are easy to understand, simple to set up and don’t have the higher administrative costs associated with other charitable giving techniques.

Most people think the income from a gift annuity is for the life of the donor or for the joint lives of the donor and spouse. There are, however, at least seven other ways a gift annuity can be used. Let’s take a look at the two traditional applications and then summarize the other seven options. Perhaps these will plant a seed for their use in your situation that will also benefit your church.

Donor’s Lifetime Only

This is the most common and straightforward way a gift annuity is structured. You contribute cash or an appreciated asset to your church in exchange for a life income. At your death, the church keeps your contribution for its use.

For as Long as You and Your Spouse Live

In this case, there is a joint and survivor option. The organization pays out an income for as long as either the donor or the spouse lives.

Seven Other Ways to Use a Gift Annuity

1. For as Long as You and Another Person Live

The other annuitant does not have to be your spouse. For example, a woman could establish a gift annuity for her and her sister.

2. For the Lifetime of Someone Other Than the Donor.

You might want to set up a gift annuity for someone other than yourself. Examples would include a child or sibling who has special needs.

3. Any of the Above, But the Payments are Deferred for a Number of Years

Most gift annuities are paid out monthly, quarterly, semi-annually or yearly. Normally, the payments begin within the first year. However, it is possible to defer the start of the payments for a number of years.

For example, a person who is age 55 could set up a gift annuity with the idea that the payments would begin at age 65 to supplement their retirement income. Deferred gift annuities have the advantages of a higher payout and an increased charitable deduction.

4. As an Education Fund for a Child or Grandchild

A gift annuity can be created for a child or grandchild at birth or a very young age. The fund would begin paying out when the child reaches a specified age, and continue over the next four to eight years. There is, however, no obligation that the child or grandchild use the money for education. You could be funding a Corvette!

5. The “Re-insured” Gift Annuity

In my opinion, this technique should be employed more often because it provides cash for the church immediately.

The church, instead of just holding the original contribution, invests it in a “commercial immediate annuity” from an insurance company. When the insurance company sends payments to the church, the church sends a check to the donor.

The benefit of this option to the church is that the cost of the immediate annuity will be less than the amount needed to pay the income due to the donor. The church is then able to use the difference in the amounts immediately. It should be noted that factors including donor age and prevailing interest rate will determine the cost of the “immediate annuity.”

6. Exchanging a Charitable Remainder Unitrust for a Gift Annuity

If you receive the income of a charitable remainder unitrust (CRUT), this interest can be exchanged for a gift annuity. There are several benefits from this.

This gives you another charitable income tax deduction for the new gift annuity. The advantage to the charity is that is frees up money immediately that may be needed for a building campaign.

7. Use Funds From an IRA to Create a Gift Annuity at Death

Upon your death, all or part of the funds in an IRA account can be used to create a gift annuity. The result is a safe and constant lifetime income for a surviving spouse. At the spouse’s death, the amount used to fund the gift annuity then belongs to the church.

Your estate would get a charitable deduction for the charitable portion of the gift annuity. However, the IRA proceeds would still be income in respect of a decedent and subject to ordinary income taxes.

Summary

This overview represents only a surface summary of the benefits of a gift annuity. If you think one or more of these options appropriate for your needs, consult a qualified tax professional. It is important to understand all positive and negative implications for your income and tax liability.