What is a Charitable Gift Annuity?
A charitable gift annuity (CGA) is a way to make a gift to Himalayan Institute and still receive an income for yourself or others. It is a contract under which Himalayan Institute, in return for a transfer of cash or other property, agrees to pay a fixed sum of money for a period measured by one or two lives. The person who contributes an asset for the annuity is called the “donor”, and the person who receives payments is called the “annuitant” or “beneficiary.” Usually, the annuitant is also the donor, but this is not always true. The maximum number of annuitants is two, and payments can be made to them jointly or successively.

Charitable Gift Annuity Payments
Payments from a charitable gift annuity are fixed from the outset. They will neither increase nor decrease, whatever happens to interest rates or the stock market. Himalayan Institute is contractually obligated to make the payments to you.

Factors Affecting the Size of Payments
The size of the payments from a charitable gift annuity depends on the following factors:

  • The gift annuity rate offered
  • The value of the contribution
  • The number of annuitants
  • The age(s) of the annuitant(s)

Gift Annuity Rates
Himalayan Institute typically follows the rates suggested by the American Council on Gift Annuities (ACGA). Charitable gift annuity rates are lower than those offered by insurance companies to purchasers of commercial annuities so that a significant portion of a contribution will be available for charitable purposes. Though lower than commercial rates, gift annuities are still very attractive to individuals who want simultaneously to support a favorite charity and to provide payments to themselves or others.

Why Might a Gift Annuity Be Appropriate For Me?
Most gift annuity donors are retired, want to increase their cash flow, seek the security of guaranteed payments, and would like to save on taxes. A charitable gift annuity could be right if you fall in one or more of the following categories:

  • The interest rates on your CDs and other fixed-income investments have declined, and you would like to increase your cash flow
  • You own appreciated stock or mutual fund shares and have considered selling some of the shares and reinvesting the proceeds to generate more income, but you have hesitated because you don’t want to pay tax on the capital gains
  • You would like to count on fixed payments, which are unaffected by interest rates and stock prices and which you cannot outlive
  • You want to assure continuation of payments to a surviving spouse without the delay of probate proceedings
  • You would like to provide financial assistance to an elderly parent, a sibling, or other person in a tax-advantaged manner

What Are The Advantages of a Gift Annuity?

Taxation of Gift Annuity Payments
Depending upon the format of your initial contribution (i.e., cash, appreciated securities, or real estate), you may receive beneficial tax treatment on the payments. If the gift annuity is funded with cash, part of the payments will be taxed as ordinary income and part will be tax-free. If funded with appreciated securities or real estate owned more than one year, and the donor is receiving the annuity payments, part of the payments will be taxed as ordinary income, part as capital gain, and part may be tax-free. Himalayan Institute will send a Form 1099-R to the annuitant. This form will specify how the payments should be reported for income tax purposes. For details regarding the taxation of gift annuity payments, it is wise to consult with your financial advisor.

Income Tax Charitable Deduction
Taxpayers who itemize deductions can also claim a charitable deduction for a portion of the original gift. This deduction can result in significant income tax savings. In short, the deduction is equal to the amount of the contribution less the present value of the payments that will be made to the donor and/or other beneficiary during life. The present value of those payments is determined using IRS tables regarding life expectancy and assumed earnings, and taking into consideration the amount contributed and the gift annuity rate.

Example of a Charitable Gift Annuity
Mrs. Asana is a member and supporter of the Himalayan Institute. Having grown up during the Great Depression, Mrs. Asana developed certain attitudes toward money and savings. As a result, she saved consistently and conservatively during her entire life. Despite her financial planner’s suggestions, Mrs. Asana put very little of her savings into the stock market, because she was nervous about the volatile nature of stocks. Instead, Mrs. Asana put her money into CDs and bank savings accounts.

However, decreasing interest rates have caused Mrs. Asana’s CD and savings account returns to dwindle. Currently, she is earning a mere 1-3% on her retirement savings. While happy that she preserved the principal of her accounts, Mrs. Asana is displeased that her yearly retirement income has dropped off significantly. She wants to increase her income substantially but does not want to expose herself to any market risk.

Mrs. Asana could consider using some of her retirement savings to fund a charitable gift annuity (CGA). Based upon her age, Mrs. Asana would receive an 8.0% payout. This increase would almost be a 400% increase from her current return. Moreover, she currently pays ordinary income tax on all earnings from her savings accounts. However, if she funded a CGA, she would pay ordinary income tax on about 35% of the payout and the remaining 65% would not be subject to any tax whatsoever.

Mrs. Asana loves the increase in her income, the tax-free portion of each payout and the certainty of a fixed payment each year. Thus, she transferred about 20% of her retirement savings in exchange for an 8.0% CGA. In the end, Mrs. Asana accomplished all of her goals while still adhering to her deeply rooted beliefs regarding savings, safety, and money.

Adapted from the American Council on Gift Annuities

To return to the Life Income Gifts overview page, click here.

As with any decision involving your assets, we urge you to seek the advice of professional counsel when considering a gift to the Himalayan Institute.

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