What Is A Gift Annuity Agreement

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Published on: October 14, 2021

If a gift annuity agreement (1) provides for a minimum or maximum number of payments, or (2) payments to more than two persons, the obligation to pay the pension is an “employment debt”, meaning that the pension is treated as “commercial insurance” under paragraph 501(m) of the IRC. The result is that the issuing body must consider the annuity for tax purposes in accordance with the rules of life insurance companies – a highly undesirable situation. A tax trap to avoid: We have already pointed out that a non-profit gift annuity is not a trust agreement, but essentially a contract between two parties. Example: The donor transfers shares worth $10,000, with a cost base of $6,000, to a not-for-profit organization in exchange for a gift annuity with an initial cash value of $4,000. Jeremy Arkin, Assistant Vice President of Gift Planning, describes in this three-minute video how a charitable donation annuity at Duke can be part of a smart financial plan. As the name suggests, a charitable annuity consists of two elements: 1) a direct charitable gift and 2) the purchase of a fixed pension contract. Payments can start immediately or be deferred for a period specified by the donor and specified in the pension contract. The payment period can be measured by the life of an annuitant (who in most cases is the donor) or the lives of two bereaved spouses (who are usually husband and wife). Charitable donation annuities are not issued for a fixed period of years.

However, as we will see, it is possible to cancel annuity payments before the end of the life measurement period. How the donor`s charitable donation deduction is determined: When a person creates a gift annuity, they are deemed to make a charitable gift equal to the difference between the amount transferred in exchange for the pension and the present value of the annuity.1 Unlike non-profit residual funds or mutual income funds, the obligation to pay is limited only to the assets paid or the segregated fund. a charitable pension is considered a general obligation of the issuing non-profit organization […].

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