How Does a Gift Annuity Work?

A Charitable Gift Annuity is a contract between the individual (donor) and a charitable organization (i.e. EOFULA). EOFULA agrees to pay a fixed amount of income 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 income (tax deductions can be carried forward for five years, if necessary).

The asset is removed from the owner's estate. EOFULA'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 income is 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 interest 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 EOFULA, simply change the beneficiary arrangement irrevocably to EOFULA. At the demise of the annuitant, it will automatically be gifted to EOFULA. Moreover, the estate will receive an income tax deduction offset, and the asset will be removed from estate taxation. Be sure to let EOFULA know of your intentions.

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 EOFULA.

How Can Remainder Funds Be Used By EOFULA?

Any assets remaining after the lives of the beneficiaries goes to further the important work of EOFULA 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 income 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 income payments and potentially large remainder amounts for use by the Foundation.