Charitable Gift Annuities
(Funded with appreciated assets)

Charitable gift annuities are life income gifts that offer unique benefits to donors concerned about needing future income.

By utilizing appreciated stock to fund the annuity, donors can make a larger gift than they thought possible, receive a larger income stream for life, and avoid capital gains taxes. By doing so, the capital gain on the stock is avoided upon funding of the annuity. However, a portion of the capital gain will be applied to future annuity payments.

For example: Charlie, age 72, owns stock purchased six years ago for $10,000, with a current fair market value of $25,000. He transfers that stock in exchange for a 5.9% gift annuity. His charitable deduction is $9,541, or 38% of the annuity amount. A portion (38%) of the $15,000 capital gain is avoided, while the balance ($9,700) is recognized over his lifetime through the annuity payments.

Specifically, Charlie receives a guaranteed fixed payment of $1,475 per year for the remainder of his lifetime. Of this annual annuity amount, he will report $408.57 as ordinary income and $639.37 as capital gain; $426.76 would be tax-free*. In this manner, the $8,700 of capital gain is eventually fully recognized over the course of his 15.5 years of life expectancy.

*This allocation applies only through his life expectancy.

Considerably higher rates can be obtained through deferred gift annuities. These annuities are popular with individuals who are in their high wage-earning years and concerned with providing for their retirement.

Information on this site is NOT intended for legal advice. See Disclaimer.

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