Planned Giving for Financial Advisors
Charitable Gift Annuity — Deferred — Frequently Asked Questions
Can a Deferred Gift Annuity supplement my client's retirement income?
A Deferred Gift Annuity provides lifetime annuity payments commencing on a future date. Because of this deferral, payments from Deferred Gift Annuities are higher than from annuities that begin immediately, and your client will receive a larger income tax charitable deduction than she would for an immediate-payment annuity.
Can my client choose the start date for her annuity payments?
Yes, she can, as long as she defers her payments for at least a year. She can choose whatever date makes sense to her. And remember: the longer she defers payment, the larger her payments will be. She can also retain the right to “commute” her payments into a short period of time if she knows that she’ll have significant need of income at a certain point — to bridge the gap between retirement and pension payments, or to pay for a child’s or grandchild’s college tuition. If she wants to retain the flexibility to choose her start date later, she can consider a Flexible Charitable Gift Annuity.
Is it better to use gifts of cash or stock for a 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 your client's capital gain tax. Your client's charitable deduction and annuity rate are not affected by the type of asset used to fund the gift.
Can my client include her children as income beneficiaries of her Deferred Gift Annuity?
A Deferred Gift Annuity can benefit a maximum of two beneficiaries. Often, the donor and her spouse are the beneficiaries, but your client 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 gain on appreciated property. Beneficiaries must be at least 65 years old at the time the annuity payments begin.
For more flexible beneficiary options, your client can explore Charitable Remainder Trust options.
How will my client's annuity payments be taxed?
Just as with immediate gift annuities, payments from Deferred Gift Annuities are taxed based upon the assets used to fund the gift annuity. If your client funds her Deferred Gift Annuity with cash, a portion of each payment is taxed at ordinary income tax rates and a portion is tax-free return of principal. However, if she funds her gift annuity with appreciated stock, a portion of each payment is taxed as ordinary income, a portion is taxed as capital gain, and a portion is tax-free return of principal.
We can provide you and your client with estimates of the tax characteristics of the annuity payments.
How will my client's annuity rate be determined?
Like most charities, Harper College Educational Foundation offers the maximum Charitable Gift Annuity rates recommended by the American Council on Gift Annuities (ACGA).
We will be happy to provide information and calculations for your client based on various deferral periods. You can also perform calculations for yourself on our Deferred Gift Annuity Calculator.
When will my client typically want to use a Deferred Gift Annuity?
Many clients will use Deferred Gift Annuities as a source of supplemental retirement income by setting their anticipated retirement as the date on which annuity payments will begin. You client can also create a series of Deferred Gift Annuities over several years, all of which are scheduled to begin making payments on her anticipated retirement date. If your client is worried about spending power, setting up a series of "laddered" Deferred Gift Annuities, with a new Deferred Gift Annuity adding to her payments every several years, will provide a hedge against inflation.