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Getting Started: Charitable Gift Annuities

The concept of the charitable gift annuity in America dates back to 1843, when a merchant in Boston first donated a gift of money to the American Bible Society in exchange for a flow of income. Today, the concept includes valuable tax benefits for donors. But perhaps more valuable than the financial advantages is the satisfaction donors gain by helping to continue our mission and good works.

Gift Annuities Defined

A gift annuity is a simple, contractual agreement between a donor and Sisters Hospital Foundation in which you give assets to us in exchange for our promise to pay one or two annuitants payments for life.

By donating through a gift annuity, you: (1) contract for a fixed payment for yourself or yourself and another individual, if you choose, and (2) make a gift to The Foundation. If you itemize deductions on your tax return, savings from the charitable deduction reduce the net cost of the gift.

For a period of years, based on a government table of life expectancies, a portion of each payment received is considered a nontaxable return of a portion of your gift. This means a portion of each payment you receive is income tax free. This further increases your after-tax dollars available for spending or investing.

An annuity funded with appreciated property results in these additional advantages: (1) the gain allocated to the gift portion completely avoids the capital gains tax, and (2) the portion of gain to be recognized can be spread over the expected term of the contract (provided that the donor is a primary annuitant and the annuity interest is assignable only to the charitable organization).

Understanding Annuity Rates
Annuity rates are higher for older annuitants and lower for younger annuitants, based on life expectancy. As a result, gift annuity contracts are generally more appealing to older donors because the purchasing power of a fixed dollar return can shrink over any long period, even with modest inflation.

Rates are also adjusted according to the number of annuitants, with rates for two-life contracts often lower due to the extended life expectancy. The age of an annuitant is the age reached at the nearest birthday when the contract is made, and rates are the same for men and women.

A specific annuity rate is a matter of agreement between the donor and the issuing charitable organization. Below you'll see how one-life annuity rates increase with age.

These rates are recommended by the American Council on Gift Annuities and are redetermined periodically.

One Life
Your Age	Rate of Return
50	4.4%
55	4.8%
60	5.0%
65	5.3%
70	5.7%
75	6.3%
80	7.1%
85	8.1%
90+	9.5%

Two Lives
Your Ages	Rate of Return
50/55	3.9%
55/60	4.4%
60/65	4.8%
65/70	5.0%
70/75	5.3%
75/80	5.8%
80/85	6.5%
85/90	7.5%
90/95+	9.0%

The rate of return is slightly lower for two lives because the period of payment generally is longer.

*Please be advised that not all organizations offer CGAs at the above ages and rates. Contact Sisters Hospital Foundation for current rates.

A Case Study of Benefits
Linda, aged 75, plans to donate a maturing $25,000 certificate of deposit. Since she needs continuing income, Linda decides to use the cash for a charitable gift annuity that we will issue at the suggested rate of 6.3 percent. Payments will be made annually. At the time of purchase, the charitable midterm federal rate (a figure used in calculating the charitable deduction) is 3.4 percent.

Although Linda's annuity rate is 6.3 percent, her actual earnings will be higher. Because Linda itemizes income tax deductions, she earns a federal income tax charitable deduction of $11,393. With a marginal income tax rate of 28 percent, the tax savings of $3,190 will reduce the net cost of the gift to $21,810. Her annual payments of $1,575 will mean an effective rate of total return of 7.2 percent, which is Linda's annual payment expressed as a percentage of the net cost. Secondly, for the next 12 years, nearly three-fourths of every dollar Linda receives will be considered a return of her contribution in the contract and will not be subject to income tax.

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Learn More
Charitable gift annuities are an excellent method of achieving your philanthropic goals and gaining substantial tax benefits. As with most contract agreements, however, before establishing a charitable gift annuity, it is best to consult your professional advisors.

We are available to answer any questions and provide projected results for your specific situation, in confidence and with no obligation.

There may be minimums associated with this type of gift. Please contact Julie Snyder at 716-862-1992, or via e-mail at jsnyder@chsbuffalo.org, before making such an arrangement.

The information in this Web site is not intended as legal advice. For legal advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income tax include federal taxes only. Individual state taxes and/or state law may impact your results.

Please call Julie Snyder at 716-862-1992, or e-mail us at jsnyder@chsbuffalo.org, for more information.