Charitable gift annuities are a very flexible way to make a gift to the Arizona State University Foundation. They can be designed to provide 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.
Here’s how the ASU Foundation charitable gift annuity works:
- You transfer cash or other assets to the ASU Foundation. This involves the completion of a simple agreement and can normally be done by mail.
- You will receive generous 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. In addition, part of each annual payment is received tax free for a period of time.
- If you would like, you can also choose to name another person (typically 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 significant charitable gift to Arizona State University Foundation equal to a portion of the amount used to fund your gift annuity agreement.
Many persons choose to fund more than one gift annuity agreement with the ASU Foundation 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 is typically based on the full value of the property, not just its original cost.
In addition, the part of the capital gains tax that would be due on a sale of the gift portion can be avoided at the time of the gift, and the rest of the gain can be reported over the annuitant’s life expectancy. The use of appreciated, low-yielding assets to fund a gift annuity can thus be an excellent way to completely bypass capital gains tax at the time of your gift, enjoy a current charitable income tax deduction, and gain the advantage of reporting a portion of each payment at lower, more favorable capital gain tax rates for a number of years.
Planning Tip: It is also possible to establish what is known as a “deferred gift annuity.” Using this option, your gift is completed now, and your tax deduction is for this year. 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.
- One Life Example
Maureen Davis, 70, decides to give $10,000 for a gift annuity agreement on May 20, 2013. The payment rate based on age is 5.1%, or $510 for life. Because of the charitable gift portion of the annuity, there will be a tax deduction of $3,582 allowed for the year of the gift.
In addition, $404 of each annual payment will be received free of tax for the first 15.9 years that payments are received.
The amount of the gift annuity is also removed from a donor’s probate and taxable estates, in many cases resulting in additional savings.
To summarize, Maureen Davis has:
- Transferred $10,000 in exchange for an income for life.
- Arranged for payments that will total 5.1% of the gift amount annually, which is $510 per year.
- Eliminated tax on $404 (about 79% of the payments) for the first 15.9 years they are received.
- Made a gift that results in an immediate charitable income tax deduction of $3,582.
- Assured the amount used to fund the gift annuity will not be subject to estate tax or probate expenses.
The assumed date of transfer for this example is May 20, 2013. This example has used the April, 2013 IRC Section 7520 discount rate of 1.4% 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.
- Two Life Gift Annuity Rate Calculator
The following table lists age(s) when gift annuities start and the applicable annuity rate (for illustrative purposes only):
One Life Rate 70 5.7% 75 6.3% 80 7.1% 85 8.1% 90+ 9.5% Two Life Rate 70 & 72 5.3% 75 & 78 5.7 75 & 85 6.0% 78 & 82 6.1% 85 & 90 7.5%
Retirement and larger payments
Deferred gift annuities make even larger payments beginning when you retire or at another future date you choose.