Information about what a gift annuity is, the types, the philosophy behind them, the fundamentals and how to start a program, recommended best practices, and a sample gift annuity disclosure statement/letter.
What is a Gift Annuity?
A charitable gift annuity is a contract (not a "trust"), under which a charity, in return for a transfer of cash, marketable securities or other assets, agrees to pay a fixed amount of money to one or two individuals, for their lifetime.
A person who receives payments is called an "annuitant" or "beneficiary." The payments are fixed and unchanged for the term of the contract. A portion of the payments are considered to be a partial tax-free return of the donor's gift, which are spread in equal payments over the life expectancy of the annuitant(s).
Types of Gift Annuities
There are different types of charitable gift annuities, and not all states permit the use of each type. Within the regulating states, the charity usually must submit a sample of each type of agreement it wishes to offer to the residents of that state before it issues any such agreements.
The Philosophy of Gift Annuity Agreements
Any attempt to establish a philosophy of Gift Annuity Agreements must emphasize the word "gift". These agreements constitute one method by which religious, charitable and educational organizations solicit and receive contributions to carry out their purposes.
A person who enters into a Gift Annuity Agreement with a religious, charitable or educational institution makes a gift to the institution and receives fixed payments for life. If the person could afford to do so, he or she would probably donate as an outright gift the entire amount paid to the organization; but he or she needs to make some provision for income while alive.
Considering a CGA Program?
There are a number of issues to consider when starting a charitable gift annuity program. If you are thinking about starting a program at your charity, it is important to review your organization’s background, financials, structure and management to determine whether you are ready to take on the responsibilities entailed. Below, are some of the issues for your organization to consider before beginning a gift annuity program.
Recommended Charitable Gift Annuity Best Practices
Introduced at 28th Conference on Gift Annuities
In 2009, The American Council on Gift Annuities (ACGA) conducted its fourth national survey of charitable gift annuities in the last 16 years. From these surveys, confererence attendance, and ACGA membership, we believe that about 4,000 organizations are offering gift annuities. The gift annuity remains an immensely popular way of making a gift to charity while retaining a dependable stream of payments.
The Fundamentals of a Successful Charitable Gift Annuity Program
A. Gift Annuity Risks and Rewards
Charitable gift annuities are among the most popular planned gifts. While bequests form the largest segment of planned gifts in terms of volume, charitable gift annuities continue to gain momentum.
Gift annuities have actually been around for over 100 years. And there are good reasons why they continue to be popular among donors. Gift annuities provide a number of benefits to donors including:
Sample Gift Annuity Disclosure Statement/Letter
The Philanthropy Protection Act of 1995 requires each charity issuing charitable gift annuities (“CGAs”) and which commingles funds from CGAs in a common investment fund to notify all prospective donors to the Fund at the time of the solicitation by providing “written information describing the material terms of the operation of such fund.”
The following is a sample disclosure for a charity to consider using, based upon advice and guidance from its own legal counsel: