Making a Charitable Gift Annuity a Part of Your Arizona Estate Plan

A charitable gift annuity is a fund-raising device — popular with colleges and other nonprofits — that allows donors to receive as well as give. If used wisely, this vehicle can shelter large amounts of income from taxes while still serving as an income source for years to come.

An annuity is usually a contract made with an insurance company. Funds are handed over by or on behalf of an individual, known as the annuitant, to be invested in the company’s discretion. The annuitant receives regular payments for a fixed period or for life (or the lives of others specified). The payments may vary in amount based on the performance of the investments. At the end of the annuity, the accumulated value is distributed to named beneficiaries.

A charitable gift annuity is similar, except that the funds are handed over permanently to the charitable organization. The charity can make immediate use of the contributed funds but under the annuity contract, it is obligated to make regular payments of principal and interest to the donor, usually to begin on a future date or contingency, such as when the donor retires. Charities typically pool and invest portions of these donations to fund multiple annuity contracts. The payments to annuitants may be fixed or may be indexed to the performance of investments. The payments also depend on the annuitant’s age at the time the contract is made.

There are significant tax benefits to a charitable gift annuity. The annuitant can receive a partial income tax deduction for the year in which the annuity is set up. Some charities also accept long-term securities and other assets, which will ultimately reduce the annuitant’s capital gains taxes in the future. However, the tax deductions are offset by federal and/or state income taxes on the interest portion of the payments received from the annuity. That is why payments are often staggered until a point in the annuitant’s life when his or her income bracket is likely to be lower.

There are several variations of charitable gift annuities, each with their own advantages and drawbacks. It is a good idea to seek counsel from a knowledgeable estate planning attorney to see if this vehicle best serves your wealth-protection goals.

If you are considering using a charitable gift annuity as part of your estate plan, the Law Firm of Joseph M. Udall, PLC in Mesa, Arizona is here to help. For a free consultation, all us at 480-500-1866 or contact us online. Saturday and evening appointments are available.