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# Charitable Gift Annuities

A charitable gift annuity, or CGA, is a contract between an individual donor and a religious, charitable, or educational institution. Relatively simple to design and implement, they're offered by the vast majority of recognized nonprofit organizations. The organization receives an initial investment of money or property (typically stocks, bonds, or real estate) from the donor and assumes responsibility for managing the investment from that point forward. The nonprofit entity also agrees to make fixed payments from received the principal and its earnings every month for life to the annuitant (usually the donor) or a specified beneficiary. Additionally, couples can select a joint (also called a two-life) annuity, in which payments are made to one person for the duration of his or her life, and upon death the payments continue for the life of the second (or survivor) beneficiary, typically a spouse. The annuity payments can be chosen to begin immediately, or they can be deferred until a later time – such as, for example, when needed for retirement. In return, the charity keeps whatever remains of the originally invested property upon the payees' death (or deaths).

As with commercial annuities issued by life insurance, companies, the rate of interest paid by the annuity is based upon the age of the beneficiaries. The older the annuitant, the higher the annuity rate offered by the charity. This is done due to the shorter life expectancy of the older annuitant because, on average, fewer payments will be necessary to encompass the full life of older annuitants as compared to younger ones. Likewise, rates on one-life annuities tend to be higher than those of annuities covering two lives, again due to fewer payments being likely. The payments are backed by the assets of the charitable organization issuing the gift annuity. They are not guaranteed in any form by the federal government. However, regulations in several states require the organization to maintain an adequate level of funds in reserve to meet its obligations. The donor should also be aware that CGAs are irrevocable; once made, they cannot be changed.

Because of the gift involved, charitable gift annuities generally will not pay a rate as high as those of typical commercial annuities. CGA rates, however, do compare favorably with a number of other fixed-income alternatives, such as certificates of deposit, money market mutual funds, and some bonds. Other CGA advantages include:

- A relatively low minimum investment requirement – typically five- to ten thousand dollars.
- No medical underwriting requirement.
- Payments to the second beneficiary of a two-life annuity begin upon the death of the primary beneficiary, thus avoiding lengthy and expensive probate.
- The funds or property given in exchange for a CGA are removed from the donor's estate and therefore not subject to estate tax. However, in the case of a joint annuity when the second beneficiary is not the primary beneficiary's spouse, gift taxes could become involved.
- A current income tax deduction for the estimated value of the balance of the annuity that the charity will receive after the last beneficiary has died.

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