Deferred Gift Annuity
By: Source: AARP.org Date Posted: 2002-11-25 08:09:40
Deferred Gift Annuity
It is always difficult to build money securely for future use. There are challenges such as retirement contributions, economic fluctuations, and volatile market conditions. Our deferred gift annuity program allows donors to build their assets, deduct the donation, and provide a lasting gift to the AARP Foundation.
An annuity, sometimes called a commercial annuity, is a contract between an insurance company and a person called an annuitant. It pays a fixed amount annually for a specific period or life. A Charitable Gift Annuity is similar except it is a contract between the charitable organization (AARP Foundation) and a donor. A deferred payment gift annuity simply allows income to start at a date in the future as selected by the donor. At the end of the gift annuity contract, the remaining asset is transferred to the AARP Foundation to be used to enhance the quality of life for people 50 and over, promoting their independence and dignity and providing leadership on issues of importance to them.
How A Deferred Gift Annuity Works
Once a donor provides a gift of cash or marketable securities, the AARP Foundation is obligated to pay one or two persons a fixed income for life beginning on a date in the future (at least one year hence). The annuity is secured by the assets of the AARP Foundation. The donor receives an income tax charitable deduction in the year of the gift. Future contributions cannot be added to the gift annuity, but new annuities can be established each time a donation is made ($5,000 minimum).
Annuity rates of interest are based on the life expectancy of the annuitants. The older the annuitant, the higher the annuity rate. The rate on a two-life annuity is lower than a one-life annuity. For an exact rate, contact the Office of Planned Giving at 1-800-775-6776 or email plannedgiving@aarp.org.
Can I Use A Gift Annuity To Help Pay College Costs Or Supplement Retirement Income? In the question of funding a college education, instead of formulating the annuity for payments to the donor, it can be structured so that the accumulation is deferred until needed for college, then paid directly to the student.
In a similar manner, additional retirement income can be acquired for adults. A donor, say at the age of 45, could establish a gift annuity which will begin making payments at age 60. As a result, the donor receives a tax deduction in the year of the gift when in a high tax bracket and receives income in later years when the tax bracket is lower. Alternatively, gifts could be made over a period of years in an effort to build a large retirement income fund. All the while, the asset is growing on a tax-sheltered basis.
Like other types of annuities, a portion of the income in a gift annuity is not taxed because it is considered part of the original principal. Assets transferred to the AARP Foundation to establish a Deferred Gift Annuity avoid estate taxation, unless someone other than the donor's spouse is the successor.
The AARP Foundation Office of Planned Giving is available to provide confidential proposals. Contact us at 1-800-775-6776 or email plannedgiving@aarp.org.
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