If you have a favorite cause or charity and are interested in investing through an annuity, the tax benefits of a charitable gift annuity structure might be a perfect fit for you, as an investor. Charitable gift annuities are lump sum donations to charities that are accompanied by an annuity contract. Part of the donation is a gift to the nonprofit organization, while part of it is paid out in an annuity to a beneficiary named by the donor and backed by the entire holdings of the charity. The donor receives an immediate tax benefit that year through the ability to deduct the donated amount from their income taxes for the year of the donation.
Different organizations structure their gift annuities differently, resulting in varied long term tax benefits of a charitable gift annuity. The donor also has choices to make as they set up a mutually beneficial contract. The amount of giving will be the first consideration. The investor can consider the impact on that year’s taxes, charitable giving already made that year, and other tax credits. The next consideration is the naming of the beneficiary. The donor can choose one or two beneficiaries in several different annuity structures. The single life annuity structure benefits one annuitant with a lifetime annuity payment. If the annuity contract designates “two lives in succession,” then the annuity payment is made to one person until their death, followed by the second person listed. This is a structure often used with the donor as the first annuitant and a child as the second annuitant.
For designating a married couple as annuitants, the best option might be a “joint and survivor” contract. In this agreement, the two beneficiaries are each paid half the annuity simultaneously until one of them dies. After the death of the first one, the survivor is paid the full amount of the annuity. This can have added tax benefits of a charitable gift annuity because of the way married people file joint income tax returns.
The donors also have control over when the annuity payments will begin. They can choose to have them start immediately or set a start date in the case of a deferred charitable gift annuity contract. If they do not know yet exactly when they wish the annuity to begin, a flexible contract can be drawn up that has a target, or tentative, start date subject to change. Tax benefits of a charitable gift annuity for the beneficiaries are dependent on several factors.