Charitable Gift Annuity – Deferred:

Questions Donors Ask

How can this gift enhance my retirement savings?

A DGA provides lifetime annuity payments commencing at a future date. Because of this deferral, payments from deferred gift annuities are higher than from annuities whose payments begin immediately. Donors usually receive a larger charitable deduction than they would for an immediate-payment annuity. Many donors use DGAs as a source of supplemental retirement income. They often create their annuity with funds they had already set aside for retirement savings and set their anticipated retirement as the date to begin receiving payments. An attractive option is to establish a series of DGAs over several years, all scheduled to begin payments upon the donor’s retirement.

May I choose the start date for my annuity payments?

Yes. Donors should choose whatever date makes sense to them. Advise donors that the longer they wait, the larger their payments will be.

Is it better to use gifts of cash or stock for my deferred gift annuity?

One is not necessarily better than the other. Both have distinct advantages. A gift of cash will produce a larger tax-free portion of the annuity. A gift of stock will reduce the donor’s capital gains tax and produce income that will likely be at a lower tax rate. Both assets produce an equal annuity rate and charitable income-tax deduction.

Can I include my children as income beneficiaries of a deferred gift annuity?

A DGA can benefit a maximum of two beneficiaries. Often, the donor and her spouse are the beneficiaries, but donors can also name children, parents, or friends as annuitants. Note that naming beneficiaries other than a spouse will raise gift tax considerations and cause immediate recognition of capital gains on appreciated property. For attractive annuity rates, beneficiaries should be at least 65 years old at the time the annuity payments begin. For more flexible beneficiary options, donors can explore Charitable Remainder Trust options.

How will my annuity payments be taxed?

Just as with immediate gift annuities, payments from DGAs are taxed based upon the assets used to fund the gift annuity. If the donor funds a DGA with cash, a portion of each payment is taxed at ordinary income-tax rates and a portion is a tax-free return of principal. However, if the donor funds their gift annuity with appreciated stock, a portion of each payment is taxed as ordinary income, a portion is taxed as capital gains, and a portion is tax-free return of principal. We can provide you and donors with estimates of the tax characteristics of the annuity payments.

How will my annuity rate be determined?

Your organization should offer the maximum CGA rates recommended by the American Council on Gift Annuities (ACGA) and will need to be prepared to provide information and calculations for donors based on various deferral periods.

When will I typically want to use a DGA?

Many clients will use DGAs as a source of supplemental retirement income by setting their anticipated retirement as the date on which annuity payments will begin. The donor can also create a series of DGAs over several years, all of which are scheduled to begin making payments on their anticipated retirement date.