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Planned Giving for Financial Advisors

Charitable Gift Annuity — Immediate — Detailed Gift Description

Of all life income gifts, the Charitable Gift Annuity is the simplest and most popular. Under this arrangement, your client transfers cash or other property to Harper College Educational Foundation in exchange for our commitment to pay her (or her beneficiary) a specified annuity amount regularly for the rest of her life. Our contractual commitment to your client is backed by the full, unrestricted assets of Harper College Educational Foundation.

To create a Charitable Gift Annuity, your client will contribute assets to Harper College Educational Foundation in exchange for a fixed annuity payment for her life or the life of a maximum of two annuitants she designates. The annual payment will be fixed at the time the gift annuity is funded and will not be affected by investment performance or changes in interest rates over time. The payments are backed by the full, unrestricted assets of Harper College Educational Foundation and are typically made in quarterly installments. Your client will receive income tax charitable deduction an income tax charitable deduction based on the fair market value of the assets she contributed minus the present value of the life-income interest she retained.

Note that, unlike commercial annuities, Charitable Gift Annuities have a philanthropic (tax-deductible) component, so the gift annuity rates for a comparable contribution will be lower than those offered by commercial banks or annuity companies for a commercial annuity.

At the end of the contract term, the remaining principal, called the residuum, will be distributed to Harper College Educational Foundation to be applied to the purposes designated when your client created the contract.

An annuitant must be at least 65 years old when her annuity payments begin. For younger clients, you can explore a Deferred Gift Annuity that postpones annuity payments until a future date. Harper College Educational Foundation will enter into a gift annuity contract with a minimum contribution value of $10,000.

Annuity rates

Like most charities, Harper College Educational Foundation offers the maximum Charitable Gift Annuity rates recommended by the American Council on Gift Annuities (ACGA). For example, recent annuity rates are set at: 4.4% for a 60-year old, 5.1% for a 70-year old, and 6.8% for an 80-year old. The rate is multiplied by the value of the initial contribution to determine the amount of your client's annuity payment. A summary of current ACGA rates can be found here.

Charitable Gift Annuities are a responsible option for risk shifting of investments. Because other retirement investment options have no guaranteed return on investment, including an option that has a guaranteed rate of return in your client's retirement plan can help to give her some stable income to count on regardless of the state of the economy.

Income tax charitable deduction

The income tax charitable deduction your donor can claim is based upon the annuitant's date of birth (and resulting payout rate) and an adjusted federal interest rate (commonly known as the IRS Discount Rate, Applicable Federal Rate or 7520 Rate).

Taxation of annuity payments

In addition to your client's income tax charitable deduction in the year she creates her annuity contract, your client will receive tax benefits throughout the annuity term. Because your client has invested in the contract, a portion of each annual payment to her will be treated as a tax-free return of principal. In addition, if your client used appreciated property to fund the contract, she will recognize the non-charitable portion of the contract value as capital gain in increments over her actuarial life expectancy (she will avoid capital gain on the deemed charitable portion entirely). The remainder of the annuity payment will be taxed as ordinary income. At the end of her actuarial life expectancy, your client will recognize the entire annuity amount as ordinary income. Harper College Educational Foundation will provide you and your client with calculations that will help you evaluate the tax benefits during the contract period, and we will issue a Form 1099 each year of the annuity contract detailing the tax characteristics of each annuity payment.

Warning!

If your client is not one of the payment beneficiaries of the gift annuity, the capital gain on the non-charitable portion will be due in the year of the gift, rather than as a portion of the contract payout over the life expectancy of the annuity.

Funding assets

Charitable Gift Annuities can be funded with cash, appreciated securities, and sometimes even real estate or business interests.

The process of creating a gift annuity

Harper College Educational Foundation will provide a Charitable Gift Annuity contract for your client's and her advisor's review. Once the contract is ready to be signed, you and your client will arrange for the transfer of her assets to Harper College Educational Foundation pursuant to instructions we will provide. Once all parties have signed the contract and the assets have been received, the contract will be in force. Most states require that our organization file template contracts in order to issue gift annuities. Accordingly, the language of the gift annuity contract is typically not negotiable.

Note that your client's state of residence may impose restrictions on whether Harper College Educational Foundation can enter into and administer a gift annuity contract with your client. If unavailable, consider a Charitable Remainder Annuity Trust or Charitable Remainder Unitrust.

Is this gift right for your client?

A Charitable Gift Annuity may work for your client if…

  • She wants to make a significant gift to Harper College Educational Foundation and receive lifetime payments in return.
  • She wants to maximize the payments she receives from her gift — and she wants to lower her income tax on those payments.
  • She wants the security of payment amounts that won't fluctuate.
  • She appreciates the security of her payments being a general financial obligation of Harper College Educational Foundation.

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