Charitable Gift Annuities:
Charitable Gift Annuities: Gifts that Give Back
Charitable gift annuities are a wonderful way to make a meaningful gift to Central Pennsylvania Conservancy now, while receiving a guaranteed income stream and terrific tax benefits. The following information tells how charitable annuities work and how both you and Central Pennsylvania Conservancy can benefit from them.
What is a Charitable Gift Annuity?
A Charitable Gift Annuity is an agreement between you and Central Pennsylvania Conservancy whereby CPC pays you and your spouse a fixed annuity payment for life in exchange for your gift of cash or marketable securities. Your payment is based on your age at the time you make your gift. Central Pennsylvania Conservancy's minimum to establish a charitable gift annuity is $10,000.
What are the Tax Benefits?
Charitable tax deduction: You are entitled to a charitable income tax deduction for a portion of your gift in the year you establish your gift annuity.
Tax-free Income: A portion of your annuity may be tax-free for a period of time, further boosting your income.
Capital Gains Tax Reduction: If you fund your annuity with long-term appreciated securities, you can significantly reduce the amount of capital gains tax that would otherwise be imposed if you sold the securities.
How are the Annuity Payments and Charitable Tax Deductions Determined?
Central Pennsylvania Conservancy follows the rate schedule established by the American Council on Gift Annuities. The amount of your gift and the number of annuitants affect the charitable deduction and annuity amount. Age also is a factor: the older you are when you make the gift, the higher the deduction and annual rate of return. We recommend establishing a charitable gift annuity after you reach age 60.
Example: Robert S., age 73, transfers $50,000 to Central Pennsylvania Conservancy for a charitable gift annuity to support land acquisition. In exchange, Central Pennsylvania Conservancy pays him 6.8% ($3,400) annually, of which $2,186 is tax-free for 13 years. He also receives a charitable tax deduction of $19,816 in the year that he makes his gift. After his lifetime, Central Pennsylvania Conservancy can use his gift for important land protection.
Can annuity payments be deferred if income is not currently needed?
Yes, And the longer the deferral period, the greater the payout and charitable deduction will be. This type of annuity is known as the Deferred Payment Charitable Gift Annuity. It is an excellent gift vehicle for younger individuals wishing to supplement future retirement income while obtaining the largest charitable deduction now.
Example: Dr. Mary T., age 45, wishes to provide stewardship support for the Central Pennsylvania Conservancy and also supplement her future retirement income. By transferring $10,000 for a deferred payment gift annuity, Dr. T receives a $3,312 charitable tax deduction now and a $1,570 annual annuity beginning at age 65.
How is Capital Gains Tax Treated?
If you use long-term, appreciated securities to fund a regular or deferred payment gift annuity, your annuity payments and charitable contribution are based on the full fair market value of the stock when it is transferred to Central Pennsylvania Conservancy. Only a portion of the capital gains tax that would otherwise be due if you sold the stock would continue to be taxable, and in most cases, the gain is reported ratably over your life expectancy.
Example: Ann F., age 76, owns $100,000 of stock yielding very little income that she purchased many years ago for $20,000. She wishes to increase her income stream and support Central Pennsylvania Conservancy. If she sells the stock and pays capital gains tax on the $80,000 of appreciation, her original $100,000 is reduced to $88,000. However, if she contributes the stock for a gift annuity, she receives a 7.2% or $7,200 annual annuity plus an immediate income tax charitable deduction of $43,046. Moreover, her capital gains tax liability is reduced from $80,000 to $45,563 and is payable over her 11.8 year life expectancy.
