You may have read about charitable annuity donations and not been exactly sure of what they are. If so, you are in good company. An annuity gift is much rarer than a typical monetary gift. Annuities are associated more with retirement plans than charitable giving.
What Charitable Annuity Donations Are
When you make an annuity donation, you're not just giving money away. Instead, you are making an investment in the organization you're trying to help. You come to an agreement with the charity that, in exchange for a one time gift of cash or property, which is usually pretty large, you or the beneficiary you designate, gets fixed payments from the charity every year. Once you and a representative sign a contract, these payments cannot be increased or decreased. Usually, you get payments for the rest of your natural life. Sometimes the payments will last for two lifetimes, meaning you can pass them down to an heir.
How Payment Amounts Are Determined
Usually, a charity will base the payments it gives out on its annuities based on the rates suggested by the American Council on Gift Annuities (ACGA). The rate you get will be based on your age and on whether your annuity lasts for one or two lifetimes. For example, as of July 2010, if you are 41 years old, the suggested rate is 4.2, meaning each year you will earn 4.2 percent of the amount of the original gift. This will remain the same as you get older. If you're 90, your rate will be 9.5% since you aren't expected to live as long as the 41 year old. These rates apply for one lifetime annuities. You can go to the ACGA's website to view all of the current rates.
How You Benefit from an Annuity
Besides helping out your favorite charity, you can gain a lot from an annuity. Some have rates that are comparable to CDs and you don't have to take much of a risk of losing your investment even if the charity folds. Remember that, unlike CDs, you don't get your original investment back. Instead, you only get the interest. This is how the charity benefits. Depending on the organization and the amount of money you donate, you can receive considerable tax advantages. Ask your tax advisor for more information on how much of your donation is deductible.
Giving Your Gift
The first step to making a charitable annuity donation is, of course, to find a charity to donate to. A lot of colleges accept these types of donations as do hospitals and cultural organizations. The ACGA has a comprehensive list, which is a good place for you to start your search. You may also wish to contact your alma mater or another organization that has made a big difference in your life.
Once you've picked your charity, speak to the office of planned giving, or, if it's a smaller organization, to the director of development. A representative of the organization should have some paperwork to give you regarding how the charity's annuities work and what you should expect to earn from your contribution over time. Before you sign your check, find out exactly what your payment schedule will be and how your contributions will be taxed. It's important that you consider all of the factors before making this major financial decision.