A charitable gift annuity is part gift and part purchase of an annuity and results in an income tax deduction. With this option, a donor can transfer cash or an asset to the Frederik Meijer Gardens & Sculpture Foundation and, in return, the Foundation will agree to make regular fixed payments to the donor for life. The annuity is paid out of the Foundation’s unrestricted funds. The donor may also name a second beneficiary to receive payments at donor’s death.
A potential Foundation donor age 80 wants to install a clematis arbor in memory of donor’s deceased daughter. Donor owns $76,000 in appreciated stock, with a basis of $7,000, but is hesitant to give it away because donor needs the income. The stock pays an annual dividend of $2,812 (3.7%). The donor establishes a charitable gift annuity with the Foundation, and receives an annual income for life and a tax deduction for a portion of the gift ($38,617) based upon donor’s age and IRS tables.
|Federal income tax savings ($38,617 x 25%*)||- $9,654|
|Federal capital gains tax deferred** ($76,000 - 7,000) x 20%||- $13,800|
|MI income tax deferred** ($76,000 - 7,000) x 4.35%||- $3,001|
|Estimated net cost to the donor||$49,545|
|Plus annual income for life to donor ($76,000 x 6.8%)||$5,168|
Benefit to the Foundation
The Foundation will sell the stock and use the money to pay the donor $5,168 per year for life. On the donor's death, athe Foundation will use the money remaining after paying the annuity to install and maintain the clematis arbor in memory of donor's daughter.
Charitable Gift Annuity Rates
The charitable gift annuity rates are approved by the American Council on Gift Annuities. They change periodically, and the most recent rates can be found at the ACGA website.
* Individual federal income tax rates vary.
** Capital gain taxes are deferred. Capital gains taxes are paid as income is distributed to the donor.