Standard Gift Annuities
An annuity is a contract to pay a certain amount in exchange for receiving payments overtime. Charitable Gift Annuities create a lifetime income stream while providing current tax deductions. Most charitable gift annuities provide monthly pay outs that start immediately after the donor makes the contribution.
Deferred Payment Annuities
A deferred payment annuity provides that a younger donor makes a gift but defers payment until a specific later date, perhaps 5 or 10 years away.
Flexible Start Date Annuities
Charities are also offering flexible start date annuities which allow donors to turnon payments at any time down the road. With all three of these approaches, the donor gets a charitable tax deduction in the year the donation is made. The deduction is based on how much leftover cash is expected to go to the charity after your death.
For example, a husband and wife purchase a $200,000 joint-life gift annuity and draw $16,000 in annual pay-outs – about 20% of their total income. They choose their favorite charities, include Green Peace, the American Civil Liberties Union, and a local animal shelter. The older the person is when they make the donation, the larger the annual payment and deduction. A 75 year old who donates $100,000 would get a lifetime annual payment of $5,800 and a $45,772 deduction. That compares with a $28,518 deduction and $42,000 annual payment for a 58 year old. By using appreciated stock to fund the gift annuity, the deduction will be based on the current value of the shares. Part of each payment will be taxed as a long-term capital gain, part as ordinary income and part as a tax-free return of principal.