In the management of trust fund assets, the donor assumes all risk. With a charitable gift annuity, SABA assumes all risk, guaranteeing to pay you and/or someone you designate an annuity for life in exchange for your contribution. Charitable gift annuities are an attractive option for donors whose contributions may not warrant the establishment of a trust.
To preserve the philanthropic intent, charitable gift annuity rates are lower than those of commercial annuity plans. Charitable gift annuity rates are recommended by the American Council on Gift Annuities. The payment structure is based upon an actuarial formula, which anticipates that half of the contributed assets will revert to charitable purposes.
The charitable remainder interest is the only portion of the contribution that qualifies as a current tax deduction. As with other annuities, a portion of each annuity payment is regarded as a non-taxable return of principal. Some states impose restrictions on the type of appreciated property that may be used to fund a gift annuity. Charitable gift annuities are attractive because they a) can be funded with smaller contributions than trusts, b) guarantee fixed annual payments, and c) offer current tax benefits.
Example: Dr. Matthews and his wife are approaching 70 and plan to retire from teaching. They wish to supplement their retirement income while making provision for the future of behavior analysis. They decide to give $50,000 to SABA to fund a Charitable Gift Annuity. In return SABA guarantees Dr. Matthews and his wife, should she survive him, a 6.8% annuity of $3,400 as recommended by the American Council on Gift Annuities. (Note: The rate structure varies with the year the annuity is established.) When both Dr. Matthews and his wife are deceased, any remaining assets will revert to SABA. The Smiths may claim a current tax deduction for the present value of the charitable remainder interest of their contribution. In addition, a portion of each annuity payment may be regarded as a non-taxable return on principal. Should the Matthews outlive the actuarial estimates of their life spans, continued annuity payments would be taxed entirely as ordinary income.
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