Types of Gift Annuities
Versions of Agreements
Generally, there are three "versions" of each "type" of agreement. The "versions" are ...
- A "single life" agreement (annuity paid to only one person for their lifetime),
- A "two lives in succession" agreement (annuity paid to person "A" and then if person "B" survives person "A", pay person "B"), and
- A "joint and survivor" agreement (pay annuity paid to two persons simultaneously with both names on the annuity payment check, and at the demise of the first annuitant, the survivor is paid the full annuity amount) This is used for married couples who file joint tax returns and/or who live in community property states.
And, the Types of Agreements are...
Immediate Gift Annuity
With an Immediate Gift Annuity, the annuitant(s) start(s) receiving payments at the end (or the beginning) of the payment period immediately following the contribution. Payments can be made monthly, quarterly, semi-annually or annually. The most common arrangement is quarterly payments at the end of the quarter. The end of a period is not the first day of a month, but the last day of a month or period, or the anniversary date of the gift. The first payment is customarily prorated from the date of the contribution to the end of the first period, and thus is smaller than the subsequent payments, but it is possible to stipulate that the first payment be for the full amount. All of these factors have some effect on the amount of the charitable deduction.
The annual annuity is determined by multiplying the amount contributed (measured as the fair market value on the gift date, NOT the net proceeds of sale if a CGA is funded with securities) by the annuity rate.
Deferred Gift Annuity
With a Deferred Payment Gift Annuity (DPGA), the annuitant(s) start(s) receiving payments at a future time, the date chosen by the donor, which must be more than one year after the date of the contribution. As with immediate gift annuities, payments can be made monthly, quarterly, semi-annually or annually.
A Flexible (Deferred Payment) Gift Annuity means that the donor does NOT have to choose the payment starting date at the time of the contribution. The annuitant (who may or may not be the donor) may choose the payment starting date based on his/her retirement date or other considerations. The older the annuitant(s) when the payments start, the larger the payments will be.
This concept provides some of the flexibility offered by commercial annuities sold by commercial insurance companies. The donor would choose an initial target date for the payments to start. The charity would then offer a range of payouts with differing fixed payment amounts and differing starting dates based on earlier or later years.
Since the charitable deduction remains fixed, the annuity rate for each starting date would have to change. The payments would be lower if the starting date was earlier and higher if the starting date was later. Each annuitant would have to determine on an annual basis whether or not they wish the annuity payments to start that year.
Generally, planned giving tax calculation software does a reasonable job in explaining these various types of annuity gift vehicles and some of them will even craft the gift annuity agreement that should meet the regulatory requirements of the states involved with that particular type of annuity gift.