How to Start a Charitable Gift Annuity Program

If you are interested in starting a new charitable gift annuity program, or wondering if you should maintain a current program, here are some questions to consider.

Why Charitable Gift Annuities?

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 maintain momentum.

Gift annuities have 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:

• A gift to the charity of the donor’s choice;
• A charitable gift annuity contract that is easy to understand and complete;
• A dependable income stream to the donor/donor’s spouse;
• An income tax charitable deduction (for those who itemize their deductions);
• Typically, some tax-free income; and
• Often a method of actually increasing income.

Similarly, there are good reasons that charitable gift annuities are popular with charities:

• The charitable gift annuity contract is easy to understand and create;
• The charitable gift annuity is easy to explain to donors and advisors;
• Charitable gift annuities are sought after by donors;
• A charitable gift annuity program will promote long-term relationships with important donors; and
• A gift annuity program will add to an organization’s asset base.

Is your organization financially stable and able to set aside a reserve fund if needed?

Here are some important considerations to see if your organization is financially prepared to issue charitable gift annuities:

• State requirements: Determine the states in which you are interested in issuing gift annuities and then obtain a list of any special financial or reporting requirements for those states. These requirements can include the length of existence for your organization, a minimum unrestricted financial surplus, and annual reporting requirements. This may limit the geographic area in which you decide to issue gift annuities.
• Organizational investment: A gift annuity program will generate future income and likely little or no current income for some years. With the cost of marketing, issuing agreements, and making the annuity payments, there will be immediate costs with no offsetting income in the early years. Your cost will be in staff time, investment fees and generally some outside legal fees.
• How risk-averse is your organization? Charitable gift annuities do carry a component of risk for the charity that other charitable giving methods do not. This is because the agreed upon payments from the charity to the donor is a legal and financial obligation to the charity.

Additionally, your donor may have their own questions about your organization’s finances.

• What is your investment history?
• Do you have an investment committee or group charged with overseeing your investments?
• Do you have an endowment?
• Have you been successful at hitting financial targets?
• What is your history of fiduciary responsibilities and performance?
• What is your history of financial stewardship?
• Has your organization ever missed an annuity payment?

Is your organization's mission aligned with offering CGAs?

If you are like most charitable organizations, you have a mission or set of underlying principles to guide your work. Because a charitable gift annuity represents a long-term investment in your organization, your donors are going to want to know that you are committed to accomplishing your mission. After all, it is the mission that is attracting the donor in the first place.

The most successful organizations for any planned giving method, including CGAs, will have a mission that is strategic, long-term, focused on perpetual issues that transcend generations of donors.

What is your Organization’s Culture and Governance Structure?

• How long have you been in existence? It will be difficult for your program to attract long-term donors if you have been in existence for fewer than five years. In fact, some state laws will prohibit you from offering gift annuities until you have been in existence for at least three or more years.
• Is there significant staff turnover? This is an important question because unreasonable staff turnover implies possible organizational stress, and long-term donors prefer organizations that both attract and retain top talent.
• Do you have the structure and resources to invest reserve funds, manage accounts, make annuitant payments, and meet state and federal reporting requirements on your own or will you need the assistance of an outside party?
• Are there staff people in your organizations with the expertise to operate a gift annuity program and with sufficient time to devote to the effort? Generally, a planned giving software program will be purchased to do the calculations necessary and provide annuity contract templates to issue gift annuities. There is a degree of sophistication and training needed to run such programs. Also, payments must be made, agreements written, and IRS filings made. If your organization has a finance department, then this should be no problem. However, if you run a small shop, then this is a significant addition in workload, and you may need to hire additional staff or contract with outside partners.
• Your board helps set the culture and governance for your organization. Does the board understand both the fiduciary and deferred nature of planned gifts like charitable gift annuities? Does the board support long-term financial and program goals? Have members of the board made planned gifts? Does your organization have a financially savvy board that can endorse gift acceptance policies? (A sample gift acceptance policy about starting a charitable gift annuity program is included in this article.)

Do you have the right donor pool?

Perhaps the most important question is do you have the right mix of donors to start a charitable gift annuity program:

• How big is your donor and prospective donor pool?
• How many of those donors make annual donations?
• How many of your donors are 60+ in age? (Most CGA program start immediate gift annuities at his age or older because of risk to the organization or attractiveness of rates to the donors.)
• How many have incomes or asset bases that can support a major gift?
• Are you currently soliciting donors for deferred gifts? Are your stewarding these donors and tracking them in your database?

How ACGA and Our Partners Can Help

The American Council on Gift Annuities is proud to support all organizations offering charitable gift annuities by providing trusted rates for you and your donors. By becoming a member, you can gain access to valuable research and educational resources that will help you build a solid foundation for your gift annuity program.

Most organizations do not administer a charitable gift annuity program without help - from evaluating your donor database, creating marketing materials, creating donor proposals, investing funds, or managing the administrative paperwork, having a trusted partner is key. Please visit our Partners page to find the right match for you and your organization.