The charitable gift annuity is a wonderful way to make meaningful gifts while enjoying income and tax benefits that can also help enhance your future financial well being.
Under the terms of a charitable gift annuity, you make a charitable gift of cash or other property. You and/or others, if you desire, then receive fixed payments for life. The frequency and rate of payments are determined at the time the gift annuity is funded. The payments will continue regardless of how long you and/or your recipients live.
Because a portion of your charitable gift annuity will be used for charitable purposes, you are entitled to an income tax deduction in the year of your gift. In addition, for a period of time, a portion of each payment may be free of income tax or taxed at capital gain tax rates that are lower than tax rates on other income. The amount used to fund your gift annuity may also be free of gift and estate taxes. You can enjoy income and tax benefits today for a gift that you might otherwise have planned to make in the future through your will or other long-range plans.
In times of lower interest rates, gift annuity payments can be a way to generate more useable income than you now receive from your investments. In addition to earnings on annuity funds, gift annuity payments include a return over time of a portion of the amount used to fund your annuity, thereby resulting in higher total payments than you might otherwise enjoy.
Mrs. Smith has decided to make a number of gifts through her will and other long-range plans. She would actually like to make those gifts now, but has decided that she cannot do so because she may need income from her assets for future living expenses.
After learning about charitable gift annuities, she decides to make a gift of $10,000 to Geisinger–Lewistown Hospital. At her age, she will receive annual payments of $820, or 8.2% of the amount transferred, for as long as she lives, no matter what the earnings from the amount used to fund the annuity.
Here is the summary of this gift plan and its benefits:
Mrs. Smith transfers $10,000 for a gift annuity agreement. She receives $820 each year for as long as she lives. For the first nine years of her payments, she will pay federal income tax on less than one-half of the payment she receives. After that time, she will pay tax on the remaining amount of the payment as well. She is allowed to deduct over $4,000 as a charitable gift for the year the gift is completed. The exact deductible amount may vary. The amount used to fund Mrs. Smith's annuity is removed from her estate, saving what could be substantial estate taxes that might otherwise be due. Mrs. Smith enjoys the knowledge that the gift portion of her annuity will be used for the charitable purposes she desires.
A charitable gift annuity can also make it possible for you to make a charitable gift while helping to meet the long-term financial needs of a loved one.
If a charitable gift annuity is of interest to you, we would be happy to provide further information upon request. Contact us at (717) 242-7365. You may also wish to talk with your financial advisor.