How gift annuities work for you
October 21, 2008| By The Heritage Foundation
Gift annuities are a simple and convenient way to make a gift. Under the terms of a gift annuity, you make a gift of cash or other appropriate assets in a way that allows you to retain payments for the remainder of your lifetime. If desired, you can also provide for payments that continue for the life of one other person or direct that the payments be made to one or two others you name.
Gift Annuity Payment Rates
Sample rates for select ages
Selected Rates for One Person
| Age | Rate | Age | Rate | |
| 65 | 5.7% | 80 | 7.6% | |
| 70 | 6.1 | 85 | 8.9 | |
| 75 | 6.7 | 90+ | 10.5 |
Selected Rates for Two Persons of the Same Age
| Age | Rate | Age | Rate | |
| 65 | 5.4% | 80 | 6.6% | |
| 70 | 5.6 | 85 | 7.4 | |
| 75 | 6.0 | 90+ | 8.7 |
To find out your personal rates, visit MyHeritageLegacy.org or call (800) 409-2003.
For illustrative purposes only.
How Much Are the Payments?
Gift annuity payments vary according to the age of the annuitant (person who receives payments) at the time the annuity is funded. See the chart at right for examples of rates for one or two persons. The older you are when you fund your gift annuity, the higher your payments will be.
What Stands Behind the Payments?
Under state law all of the available assets of the charitable recipient serve to back the annuity payments.
Enjoy Tax Savings
A generous charitable income tax deduction is allowed for the year your gift annuity is funded. Capital gains tax that would be due on the sale of assets used to fund an annuity will be partially avoided. The remainder is typically reported over the donor/annuitant's life expectancy.
Additional Benefits
A gift annuity can be an excellent way to enjoy income tax savings today while assuring that the amounts used to fund the annuity will never be subject to estate tax.
Giving for Maximum Income
To receive the greatest possible benefit from a gift annuity, it is important to think carefully about the property used to make your gift. Consider the following assets as you decide what might offer the greatest opportunity for you:
- Cash or the proceeds from bonds, certificates of deposits, and other investments that may be providing less income in today's environment.
- Stocks, bonds, or mutual funds that have increased in value since you have owned them but yield little or no income. Because capital gains tax is not due at the time you fund a gift annuity for yourself and/or a spouse, this can be a good way to make a gift while increasing your spendable cash flow.
- Withdrawals from retirement plans you may be required to make. A gift annuity can offer a way to set aside more of such funds to provide future income, while reducing taxes that would otherwise be due today. We will be pleased to talk with you and your advisors as you consider which asset might be best for you to use to fund a gift annuity.
Provide for Yourself and Others
You may create a gift annuity for your life only, your life and that of your spouse, or the life of one or two other persons. The following examples illustrate just a few of the possibilities.
Payments for One Person
Martha, 81, decides to fund a gift annuity using $25,000 in cash. At her age, she receives payments from her gift annuity equal to 7.8 percent of the amount contributed. (See chart for examples of rates.) She is also entitled to an income tax deduction for over $12,300, and for the first eight years she will pay income tax on less than one-third of her payments.
Payments for Two Lives
George and Susan, ages 80 and 71, decide to use stock that pays no dividends to fund an annuity that will continue payments for both of their lives. They are entitled to payments equal to 6.0 percent of the amount transferred as well as a generous tax deduction. In addition, the value of the annuity will be completely removed from their probate and taxable estate.
Income for Other Loved Ones
Barbara decides to create a gift annuity that will make payments to her sister for the rest of her sister's life. Barbara will be entitled to an income tax deduction for a portion
of the amount contributed. In addition, she enjoys the knowledge that her sister will receive payments that are backed by all of the assets of the charitable recipient. Contact us for gift annuity rates for you and/or others of your choosing.
Tax Savings Help You Give More
- A portion of the amount contributed for a gift annuity is deductible for federal income tax purposes.
- There can be additional income tax savings depending on your state of residence.
- Capital gains tax can be lowered and delayed when property that has increased in value is used to fund a gift annuity.
- Gift annuity payments can be taxed more favorably than many other sources of income.
- Assets used to fund gift annuities are typically removed from your taxable estate.
- Gift, estate, or capital gains tax considerations may arise in some cases where a gift annuity is created for someone other than a spouse.
Build Income for the Future
The amount of your gift annuity payments will never change. But the rate for each new annuity will be higher at later ages. For this reason, some choose to create a new gift annuity each year as part of their retirement planning. In this way, they make meaningful gifts over time while enjoying increasingly higher amounts of steady income.
