Charitable Gift Annuity

How Does a Gift Annuity Work?

A Charitable Gift Annuity is a contract between the individual (donor) and a charitable organization (i.e. the AARP Foundation). The AARP Foundation agrees to pay a fixed payment to one or two persons for life for the right to receive the remainder of the asset upon the demise of the last beneficiary. The donor receives immediate charitable income tax deductions in the year the gift is made and ongoing tax-favored payments (tax deductions can be carried forward for five years, if necessary).

The asset is removed from the owner's estate. The AARP Foundation's obligation to pay the Annuity is secured by its assets. Annuity payments can begin right away or be put off for a specified period of time (at least one year). When payments are put off for future use, such as for retirement, it is called a Deferred Charitable Gift Annuity.

The donor's age, and if elected, the age of one other person determines the interest rate that is received. You will note that the rates are quite competitive compared to commercial annuities, money market instruments, and CD rates — even most bond yields.

Ways to Fund a Charitable Gift Annuity

Commercial annuities sold by insurance companies are an excellent gift source. If an old annuity has accumulated substantially over the years, the income tax consequences could be too dramatic to sell outright. If there is an intention to leave the annuity to the AARP Foundation, simply change the beneficiary arrangement irrevocably to the AARP Foundation. At the demise of the annuitant, it will automatically be gifted to the AARP Foundation. Moreover, the estate will receive an income tax deduction offset, and the asset will be removed from estate taxation. Be sure to let the AARP Foundation Office of Planned Giving know of your intentions by email plannedgiving@aarp.org or phone 1-800-775-6776.

How To Lock In Stock Profits, Acquire A Lifetime Income And Tax Deductions Using A Charitable Gift Annuity

Stock values may have grown rapidly over the last decade. Investors are concerned that falling prices could dramatically reduce their gains. A charitable gift annuity could be a way for you to turn your stock profits into lifetime income.

Consider transferring appreciated stock, often with low-paying dividends of 0% to 2% per year, to the Foundation.

How Can Remainder Funds Be Used By The AARP Foundation?

Any assets remaining after the lives of the beneficiaries goes to further the important work of the AARP Foundation in helping the vulnerable elderly. Funds could be used to help the Foundation expand its direct service in communities, offer assistance to older adults in need and their family caregivers.

What Are The Tax Benefits Associated With A Gift Annuity?

If a donor is filing an itemized Income Tax Return in the year of the gift, the donor can claim an income tax charitable deduction. When federal and state income tax rates are combined, the rate could be nearly 50%. Thus, the "cost" of making such a gift is reduced by the charitable deductions. Similar to other annuities, a portion of each annuity payment to the beneficiary(s) is considered a tax-free return of the original investment and is not taxed. When the gift is an appreciated asset (real estate or stock), the amount of the capital gain realized through the gift annuity is spread out over the actuarial life of the donor(s) and reported annually as income is received.

Some donors may find that all of the charitable tax deductions cannot be used in the first year. Fortunately, they can be carried forward for five additional years.

Can A Gift Annuity Be Made For The Benefit Of Another Person?

Yes. A gift annuity may be established for one or two individuals. With two people, the payment is made to one person for life and then continues for the second annuitant.

Can A Gift Annuity Be Used To Supplement Retirement?

Yes. With a gift annuity, a donor can elect to defer payments until later (retirement). The donor receives tax deductions during high-income years and allows the funds to build up on a tax- sheltered basis until income begins. This tax-deferred accumulation produces substantially higher payments and potentially large remainder amounts for use by the Foundation.