A charitable gift annuity is a simple contract between you and a charity, not an insurance company. You make an irrevocable gift of cash or assets, and in return the charity pays you a fixed income for life and gives you a partial income-tax deduction. Because the charity issues it, the payments depend on the charity's financial strength, not an insurance guarantee. This is educational, not tax advice.
Is this a fit for you?
Who This Is For
- You want to support a specific charity and also receive lifetime income
- You have appreciated assets and want a partial deduction and some capital-gains benefit
- You value simplicity and a fixed payment over investment upside
- You are comfortable that the income depends on the charity's financial strength
- You will coordinate the gift with your tax advisor and the charity
Who This Is Not For
- You need the highest possible income (a commercial annuity from an insurer may pay more)
- You may need the principal back (the gift is irrevocable)
- You have no charitable intent
- You want the payments backed by an insurance company rather than a charity
- You have not confirmed the charity offers gift annuities and is financially sound
How do the options compare?
| Feature | Charitable Gift Annuity | Commercial Annuity |
|---|---|---|
| Who issues it | The charity you give to | An insurance company |
| Income-tax deduction | Partial deduction for the gift portion | None for buying the annuity |
| Who backs the payments | The charity's financial strength | The claims-paying ability of the insurer |
| Typical payout | Often lower, following suggested rates | Often higher, set by the insurer |
| What happens to the remainder | The charity keeps what remains | Depends on the contract and any beneficiary |
What are the risks, costs, and alternatives?
The charity issues it, so payments depend on the charity
A charitable gift annuity is issued by the charity, so the income depends on the charity's financial strength, not an insurance guarantee. If you want payments backed by an insurer, a commercial annuity is the different structure to consider.
The gift is irrevocable
Once you make the gift you cannot get the principal back. The income stream is the return you receive in exchange, so only give what you are comfortable parting with permanently.
Payout rates are usually lower
Payout rates often follow the American Council on Gift Annuities suggested rates and are usually lower than a commercial annuity. You are trading some income for the charitable deduction and the gift to the cause you support.
The tax treatment is specific
The deduction, the tax-favored portion of each payment, and any capital-gains treatment are specific to your situation and can change. Confirm the details with a tax advisor before you complete the gift.
What does this look like in practice?
A Donor Supporting Her Alma Mater With Lifetime Income
Illustrative example: not an actual client.
A donor, 75, wants to support her alma mater and add lifetime income. She gives appreciated stock to the university under a charitable gift annuity, arranged directly with the university rather than through an insurance company.
She receives a partial income-tax deduction, spreads some of the capital gain over time, and the university pays her a fixed income for life. Living Prepared helps her weigh the gift annuity against a commercial annuity so she understands the trade-offs before she commits.
At her death, the university keeps the remainder. She accepts that the payments rely on the university's financial strength rather than an insurer, and she values supporting the school that shaped her.
Illustrative scenario for educational purposes. A charitable gift annuity is issued by the charity, not by Living Prepared or an insurance company. Results depend on the charity, the assets, and current tax law. Consult your tax advisor and the charity.
Common Questions
Who issues a charitable gift annuity?
The charity issues a charitable gift annuity, not an insurance company and not Living Prepared. Because the charity stands behind the contract, the payments depend on the charity's financial strength rather than an insurance guarantee.
Is charitable gift annuity income taxable?
You receive a partial income-tax deduction when you make the gift, and part of each payment may be tax-favored. The exact treatment depends on your situation, so confirm the specifics with a tax advisor.
Can I get my money back from a charitable gift annuity?
No. The gift is irrevocable, so once you make it you cannot get the principal back. In return the charity pays you a fixed income for life and keeps whatever remains at your death.
Related Questions
Considering a Gift That Pays You Back?
We help you weigh a charitable gift annuity against a commercial annuity and coordinate the gift with the charity and your tax advisor, so the income, the deduction, and the cause you care about all fit your plan.
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Living Prepared, LLC is an affiliate of Whitwell & Co., LLC, an SEC-registered investment advisory firm. Insurance and annuity products are offered through licensed insurance professionals. See our Disclosures.