Charitable Gift Annuities: A Creative Option During Retirement

Charitable Gift Annuities

How many prospective donors have I talked with who desired to contribute to their charity of choice, but were reluctant to make that commitment because they didn’t want to expose themselves financially during their retirement years? Well, in such cases, it may be well worth their while to investigate creating a charitable gift annuity. This satisfies their charitable intent, without jeopardizing their financial security.

What is it?

As opposed to a charitable remainder trust, a charitable gift annuity is a contract between a nonprofit and the donor. A donor will make an initial payment of cash or marketable securities to the nonprofit. Then the nonprofit agrees to pay the donor a constant annuity for the rest of the donor’s lifetime. This income means that retired donors lessen their financial exposure in their sunset years. The remaining balance after death stays with the nonprofit to benefit its mission-related program.

Because this is a contract, the payments to the donor are backed by the assets of the charity. For this reason, it is probably more prudent to enter into agreements with larger nonprofits. This would better ensure that payments are consistently being made to the donor.

Rate of Return

Most charities pay a uniform rate of return recommended by the American Council on Gift Annuities . Therefore, they avoid competition among charitable institutions based on differing rates. The older the annuitant, the higher the rate of return. ACGA’s maximum payout rates for charitable gift annuities is 5.25%, effective January 1 of 2023. ACGA’s rate is slightly higher than what commercial marketable securities offer. The reason this advantaged rate can be offered is because the financial corpus of a charitable annuity can be responsibly eroded over the life of the annuity to secure a higher return which entices donors to make the charitable gift.

Depending on the circumstances – and using round numbers – if $100,000 is used to establish a charitable gift annuity, the nonprofit may wind up with $50,000 at the end of the one-life or two-life agreement[1] due to the corpus declining to cover the spread between the higher annuity rate and the market rate that is generated by the corpus.

The charitable gift annuity is not so advantaged that a prudent investor without charitable intent would wish to consider it. But charitable gift annuities do allow retired donors to benefit their designated nonprofit AND receive an income stream to help keep their retirement years financially secure.

If you have any interest in establishing a charitable gift annuity with the Episcopal Community Foundation for Middle and North Georgia, please contact our Executive Director, Lindsey Hardegree.

[1] “A “single life” agreement (annuity paid to only one person for their lifetime), a “two lives in succession” agreement (annuity paid to person “A” and then if person “B” survives person “A”, paid to person “B”),” American Council on Gift Annuities

Robert B. Townes IV (he/him) serves as an At-Large Member of the ECF Board of Directors and a communicant of St. Bede’s Episcopal Church in Atlanta. He is married to the Rev. Lynnsay Buehler. Rob is the Executive Vice President of Sinclair, Townes & Company, a fundraising consulting firm in Atlanta. Rob has over 35 years of experience in nonprofit service and has provided annual, capital, and legacy giving counsel for numerous philanthropic organizations, including over 50 churches and church-based ministries. Learn more about the ECF Board of Directors.

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