Transcript Slide 1
Charitable Gift Annuities
Presented by
Cathy R. Sheffield
for the
Fort Worth Metro Chapter AFP
July 8, 2013
Today’s Goal
Remove the Fear of Implementing a Program
What are CGAs
Types of CGAs
Benefits/Risks to Donors & Charities
Setting Up a Program
Requirements
Administration
Other logistics
Gift Annuities
The American Bible Society is credited for
pioneering the first gift annuity program in the
United States beginning in 1831 when a
merchant in Boston first donated a gift of
money to a charity in exchange for
a flow of income.*
*www.americanbible.org
Charitable Gift Annuities
According to the ACGA,
4,000 + organizations and institutions
now issue charitable gift annuities.
Charitable Gift Annuities
Identify ways donors can make gifts that are
completed today with retained income and/or
result in a gift at the end of their lifetime.
The goal should be to find the most effective
ways to make larger gifts in today’s environment.
Charitable Gift Annuities
Hybrid: part charitable gift and part annuity
AKA: split interest gift
Charitable Gift Annuities
A gift annuity is a contract (not a trust)
under which a charity, in return for a transfer
of cash, marketable securities, or another
asset, agrees to pay a fixed amount of
money (payment) to one or more
individuals, for their lifetimes.
Terminology
Annuitant – Individual(s) to whom the annuity
is paid
Annuity –Fixed stream of income payable in
annual or more frequent installments over
the life/lives of the annuitants
Charitable Gift Annuities
The annuity payments are not considered
“income”, for a portion of the payments are
considered to be a partial tax-free
return of the donor’s gift
Charitable Gift Annuities
Irrevocable gift becomes part of the charity’s assets
Payments are a general obligation of the charity
Annuity is backed by charity’s entire assets, not just
property contributed
Annuity payments continue for the life/lives of the
annuitants - not ONLY for as long as the asset
remains in the Gift Annuity Fund ! !
Charitable Gift Annuities
While the charity may spend a portion of the
contribution immediately, it must maintain
sufficient reserves to meet annuity obligations
and satisfy regulatory requirements of each state
in which the charity issues gift annuities
Charity should track the ongoing value of each
gift within its gift annuity fund, so it can withdraw
the correct residuum amount (market value not
the book value of the residuum balance)
Charitable Gift Annuities
Common Types
Immediate Gift Annuity
Deferred Gift Annuity
Flexible Gift Annuity
Charitable Gift Annuities
Immediate Gift Annuity
Payments begin immediately
Payments are monthly, quarterly, semiannually or annually
Charitable Gift Annuities
Deferred Gift Annuity
Payments begin in the future, the date chosen
by the donor, which must be MORE than one
year after the date of the contribution
Payments can be made monthly, quarterly,
semi-annually or annually
Charitable Gift Annuities
Flexible Gift Annuity
DN does not have to choose starting date at the
time of the contribution
The older the annuitant when the payments start,
the larger the payments
Donor chooses initial “target date” for the payments
to start from a range of payouts differing fixed
payment amounts and differing starting dates
The charitable deduction is fixed – the annuity rate
for each starting date changes (lower if starting date
is early – higher if starting date is later)
Charitable Gift Annuities
Characteristics and Advantages:
Inexpensive to establish – not complicated
Provides an income stream for life/lives
Immediate income tax charitable deduction based on
age, payout rate, earnings assumptions and IRS
discount rate
Prospects are generally older and may have less wealth
Attractive in times of lower interest rates and lower
inflation rates
Tax Advantages/Consequences
Tax Advantages/Consequences
Charitable deduction - The portion of the transaction
that is considered a gift is eligible to be considered a
charitable contribution
Income tax savings - Part of the annual amount the
annuitant receives is considered a tax-free return of
capital, excluding it from gross income until they
reach their life expectancy
Estate tax savings - If the donor and their spouse are
the only beneficiaries, the value of the annuity may
not be taxed in their estates - It may qualify as a
marital deduction
Tax Advantages/Consequences
Up to 90% of gifts will be funded with cash or long-term
appreciated securities
Federal income tax deduction the donor is eligible to
claim falls under the same contribution ceilings as for an
outright gift
Cash - deduct up to 50% of AGI, 5-yr carry over period
Long-term appreciated property – deduct up to 30% of
AGI, 5-yr carry over period
Tax Advantages/Consequences
Charitable gift annuity tax consequence calculations require the
following information:
o
o
o
o
o
o
Date
FMV
Cost basis
Birthdates
IRS discount rate
Payment schedule
o Timing of the annuity payments
o How capital gains are to be paid
o Partial payments
A portion of each annuity is included in the recipient’s gross
income
o Ordinary income
o Capital gain
o Cost Basis
Tax Advantages/Consequences
Property Appropriate For Annuities:
Cash (most common asset)
Particularly when CDs come due
Appreciated securities
Avoid immediate capital gain on the conversion
Real estate (charity beware!)
Be mindful that some states prohibit donors from using real
property for a gift annuity
Tax Advantages/Consequences
The tax implications of a gift annuity change depending on:
Who owns the gift property
Who is the annuitant(s)
If the donor uses appreciated, long-term property what
are the capital gain implications?
What is the donor’s gift tax liability, if any?
The sequence of the annuitants
Donor/Annuitant Combinations
for Tax Consideration
Ownership of property: Donor
Annuitant:
Donor
Ownership of property: Donor and spouse
Annuitant:
Donor
Ownership of property: Donor
Annuitant:
Spouse
Ownership of property: Donor and spouse
Annuitant:
Donor and spouse –
Joint and survivor
Ownership of property: Donor
Annuitant:
Donor, then spouse
Ownership of property: Donor
Annuitant:
Spouse, then Donor
Ownership of property: Donor
Annuitant:
non-spouse
Ownership of property: Donor
Annuitant:
Donor, then nonspouse
Ownership of property: Donor
Annuitant:
non-spouse, then
donor
Ownership of property: Donor and spouse
Annuitant:
Someone else
Ownership of property: Donor and spouse
Annuitant:
Donor, then non-spouse
Ownership of property: Donor and non-spouse
Annuitant:
Donor and non-spouse,
joint and survivor
Ownership of property: Donor and non-spouse
Annuitant:
Donor
Ownership of property: Donor and non-spouse
Annuitant:
Someone else
American Council on Gift Annuities:
www.acga-web.org
American Council on Gift Annuities
ACGA for suggested rates:
Gift should result in a significant residuum with risk
to charity minimal
Rates should be lower than commercial rates
Rates should be high enough to attract donors
ACGA rates should have credibility so that most
charities will continue to follow them
ACGA Rate Assumptions
Charitable residuum will be 50%
Life expectancies are based on the Annuity 2000 Tables
Charities expenses for investing the annuity reserves
and administering the annuities are not to exceed 1%
Total return on annuity reserves for immediate gift
annuities is 4.25%
ACGA Single Life
Age
Annuity Rate
65
4.7
70
5.1
75
5.8
80
6.8
85
7.8
90
9.0
ACGA Two Life Rates
Younger Age
Older Age
Annuity Rate
65
66-68
4.3
65
73-95+
4.5
70
70
75-78
79-95+
4.8
4.9
75
76-77
5.1
75
82-83
5.5
80
85
6.1
The Gift Annuity Contract
The Gift Annuity Contract
Contract
Required for all gift annuities
Some states require unique, state mandated disclosure
language
Planned giving software provides contract agreement
samples (PG Calc, Crescendo, etc)
Consider the primary legal residence (state) where your
donor (and/or annuitant) resides
The Gift Annuity Contract
Contract
Typically a simple, 1 page document
Prepare 2 original documents for signature
Donor receives a signed original
Charity receives a signed original
Recommend professional advisor and family review
The Gift Annuity Contract
Required Donor Information
Name of donor(s)
Legal address of the donor(s)
Name of the annuitant(s)
Legal address of the annuitant(s)
Date of birth of the annuitant(s)
Social Security number for each annuitant
Consider a pre-CGA Application Form
The Gift Annuity Contract
Required Donor Information
Sequence of annuity payments
o Consecutive: A for life, then B, if B survives A
B for life, then A, if A survives B
o Concurrent and Consecutive:
A and B jointly, then survivor
Cost basis
Holding period for gifts of capital assets
Payment instructions
Gift restrictions
Right to revoke annuity interest
Sample Charitable Gift Annuity Contract
Two Life - Immediate Payments
Two Life – Donors are the Annuitants
This Agreement is made between John Doe and Jane Doe (Donors), 123 Main
Street, Fort Worth, Texas 76104 and Charity USA (Charity), 456 Broadway Ave.,
Fort Worth, Texas 76109.
Transfer of Property by Donor
Charity certifies that the Donors, as an evidence of their desire to support the work of
Charity and to make a charitable gift, on [date of gift] contributed to Charity the
property the fair market value of which is $100,000.00.
Payment of Annuity
In consideration of the property transferred by the Donors, Charity shall pay an
annual annuity of $6,700.00 from the date of this Agreement and shall pay such
amount to the Donors so long as they are living.
Payment Dates; First Installment
The annuity shall be paid in quarterly installments of $1,675.00. The first installment
shall be payable on March 15. Subsequent installments continuing every quarter on
the 15th of the month shall be in the amount of $1,675.
Birth Date of Donors
The John Doe’s date of birth is December 27, 1933 and Jane Doe’s date of birth is
June 12, 1943.
Irrevocability; Non-assignability; Termination
This annuity is irrevocable and non-assignable, except that it may be assigned to the
charity. The charity’s obligation under this Agreement shall terminate with the regular
payment preceding the Donors’ death.
Uses and Purposes of Gift
Upon charity's satisfaction of its obligation under this Agreement, an amount equal to
the residuum of the gift shall be used by Charity for ____________.
Entire Agreement; Governing Law
This Agreement, together with Schedule A attached hereto, constitutes the entire
agreement of the parties. This Agreement shall be governed by the laws of the state
of state.
Disclosure Statement
Donor has received and read the attached disclosure statement pursuant to The
Philanthropy Protection Act of 1995.
This charitable gift annuity is not insurance under the laws of the state of Texas and
is not subject to regulation by the Texas Department of Insurance or protected by a
guaranty association affiliated with the Department.
This Agreement is effective as of [date of gift].
___________________
Donor
___________________
Charity Representative
___________________
Date
___________________
Date
Charitable Gift Annuity
John and Jane Doe
and
Charity USA
Schedule A
Check # 2567 - $100,000
State Regulation of CGAs
Schedule A
State Regulation of CGAs
Texas Regulation
Under Chapter 102, Texas Insurance Code, charitable gift
annuities are exempt from insurance regulation.
To qualify for the exemption, the charity must have been in
operation for more than 3 years and must have $100,000 in
available unrestricted assets.
Charity MUST file notice with TX Dept of Insurance
State Regulation of CGAs
Department of Insurance is required to certify:
The nonprofit and tax exempt status
The annuities to be offered are charitable gift
annuities
That the annuity agreements will include the
required disclosure language
State Regulation of CGAs
Texas Regulation
A disclosure statement must be included in each gift
annuity agreement.
Suggested language:
This charitable gift annuity is not insurance under the
laws of the state of Texas and is not subject to regulation
by the Texas Department of Insurance or protected by a
guaranty association affiliated with the Department.
State Regulation of CGAs
Texas Regulation
Failure to comply permits a fine of up to $1,000 for each
annuity issued during the time the organization is not in
compliance.
For more information contact:
Mrs. Shaun Craig, Insurance Specialist
Life/Health Division - Life, Annuity & Credit Section
Texas Department of Insurance
MC-106-1E
P.O. Box 149104
Austin, TX 78714-9104
(512) 322-3595 Email: [email protected]
Administration
Administration
Manage gift annuities in house.
Work with your business/finance office
You will want administration software
Deliver annuity checks on date due
Reclaim if over paid
Form 1099-R (by Jan. 31 to donor and Feb 28 to
the IRS)
Outsource management of gift annuities.
Contract with a financial institution
Marketing Charitable Gift Annuities
Target Audience:
Consistent donors
Board members
Major donors
Volunteers
Individuals with appreciated dividend paying
assets who like/need income
Charitable Gift Annuities
Sample of Online Resources:
www.acga-web.org
www.pppnet.org
www.pgdc.com
www.stelter.com
www.plannedgivingcompany.com
www.crescendosoft.com
www.virtualgiving.com
www.pgcalc.com
Questions?
Feel free to contact me:
[email protected]
817-927-6221