If you want to make a donation to your church or other ministry AND receive an income stream you can’t outlive, a charitable gift annuity can make sense.
A charitable gift annuity is a contract between you and the Missouri Baptist Foundation. You donate cash, securities or other assets to the Foundation and the gift qualifies for a charitable tax deduction, depending on your personal circumstances, in the year of the gift. The Foundation invests the money and returns some of it to you in fixed payments for the rest of your life. Your charitable gift will benefit the ministries of your choice after the death(s) of the annuity payment recipients.
Thousands of organizations raise needed ministry funds using gift annuities. Payout rates may differ among different institutions although most use rates set by the American Council on Gift Annuities.
You can elect to start payments immediately or defer them for later. The older you are, the higher the payout rate. For example, the American Council’s maximum immediate payout rate for someone making a donation at age 65 is currently 4.7%; based on the average $50,000 gift, the donor would receive an annual payment of $2,350. The payout rate is 5.1% for those age 70, 6.8% at age 80, and 9% at age 90 and older.
You can also choose a reduced payment over two lives instead of one, so the income stream would continue until the second person’s death. For example, the payout rate for a couple who are both age 65 is 4.2%, or $2,100 a year on a $50,000 donation, instead of 4.7% on a single life.
Gift annuities aren’t for everyone. But in addition to an income stream you can’t outlive, you also get a tax break and the knowledge you are benefitting a ministry of your choice.
Take a tax deduction. Depending on the amount of the gift and your specific tax situation, you may be able to deduct the part of your donation that won’t be returned to you in annuity payments. The deduction is calculated by taking the full amount of your gift and subtracting the present value of all the payments you’re expected to receive during your lifetime. The present value is determined using tables regarding life expectancy and assumed earnings.
If you’re donating cash, part of your payments each year will be a tax-free return of principal, and the rest will be subject to ordinary income tax. If you donate appreciated securities, you won’t owe tax on all of the capital gains because a portion of your gift goes to the charity. You will pay tax on the long-term capital gains income returned to you in annuity payments, but the tax will be spread out over your expected lifetime. Each year, the Foundation will tell you the portion of your payments that is tax-free and the portion that’s subject to capital gains or regular income taxes. You will continue to receive payments no matter how long you live. Once you pass the age of your life expectancy (based on an annuity mortality table), all payments to you will be subject to ordinary income tax—whether you gave cash or appreciated securities. It is always wise to consult with your financial advisors to discuss specifics regarding the taxation of gift annuity payments.
A Charitable Gift Annuity allows you to make a gift to the ministries of your choice, receive a fixed income for the future and see an impact on the lives of the recipients and growth of the church. For more information regarding this or other gift/estate planning options, don’t hesitate to contact the Missouri Baptist Foundation.