Charitable gift annuities are a very flexible way to make charitable gifts to Midwestern University, providing a fixed income for life for you and/or others you choose. They are easy to create and can be funded with gifts of relatively modest amounts. See Example
Here’s how a charitable gift annuity works:
- You transfer cash or other assets to Midwestern University. This is accomplished through the completion of a simple agreement and can normally be done by mail.
- You will receive fixed payments annually (or more frequently, if desired). The amount of your payment is a percentage of your gift at the time your gift is funded and will not change with interest rate and investment market fluctuations.
- You will be entitled to an immediate charitable income tax deduction for a portion of the amount used to fund your gift annuity, which may reduce your federal and/or state income tax.
- A part of each payment is received tax free for a period of time.
- If you would like, you can also choose to name another person (often a spouse, parent or sibling) to receive payments with you, instead of you, or following your lifetime for the remainder of his or her life.
- The assets used to fund your gift annuity will generally be removed from your estate for probate and tax purposes.
- You make a tax-deductible charitable gift to Midwestern University equal to a portion of the amount used to fund your gift annuity agreement.
Many persons choose to fund more than one gift annuity over time. As payment rates increase with age, each gift annuity generally features larger payments.
When property such as stock, mutual funds, or other securities that have increased in value is given for a gift annuity, the charitable deduction can be based on the full value of the property, not just its original cost. Additional tax savings may be possible through the reduction, elimination or delay in reporting any long-term capital gain that might otherwise be realized if assets were sold.
- Maureen Davis, age 70, will transfer assets valued at $10,000 to Midwestern University in exchange for a charitable gift annuity, which will provide payments for life.
- The payments will be 4.7% of the gift amount annually, which is $470 per year. For the first 15.9 years, approximately $399 (about 85% of the payments) will be received income tax-free.
- The gift will result in an immediate charitable income tax deduction of $3,652. Additionally, the $10,000 given in exchange for the annuity will not be subject to estate taxes.
- At the end of the annuity period the amount of the gift, less the cost of making the life payments, will be used by Midwestern University to further its mission.
The assumed date of transfer for this example is February 25, 2021. This example has used the February 2021 IRC Section 7520 discount rate of 0.6% to optimize the charitable deduction.
NOTE: This calculation is provided for educational purposes only. The type of assets transferred, the actual date of the gift, and other factors may have a material effect on the amount or use of your deduction. You are advised to seek the advice of your tax advisors before implementing a gift of this type.
See the Gift Annuity Rate Table for examples of gift annuity rates for one or two persons at various ages.
- Example for Two People
Your rate for a one-life gift annuity at age 70 will be 4.7%
Enter age for a second person here (1/1/1940) and see the two-life rate for ages 70 and 81. Your rate for a two-life gift annuity will be 4.5% and your income tax deduction will be $3,325.
Enjoy Larger Payments that Begin Later
It is also possible to establish what is known as a “deferred gift annuity.” Using this option, your gift is completed now, and you enjoy an immediate income tax deduction for a portion of the amount donated. The payments are structured, however, to begin at least one year after the gift annuity is funded. Your tax deduction and payment rates are higher as a result. This can be an excellent way to make gifts while providing for a higher income in the future should it be needed.
See deferred gift annuities for additional information.