What is a Charitable Gift Annuity?

Shawn Plummer

CEO, The Annuity Expert

What is a charitable gift annuity? A charitable gift annuity (CGA) is a concept whereby a donor makes a gift of money or property to charity, and the charity gives back an agreed-upon income stream to the donor for the remainder of their life or joint lives.

If the actuarial value of the annuity is less than the value of the property transferred, then the difference in value constitutes a charitable deduction for federal tax purposes.

CGAs are not investments.

Annuity payments are tax-free partial returns of the donor’s gift based on actuarial tables of life expectancy.

To qualify as a charitable organization under federal law, the entity must be one described in either Section 501(c)(3) or Section 170(c) of the Internal Revenue Code (IRC).

The American Council on Gift Annuities (ACGA) established the maximum rates of return typically paid on these uninsured annuities.

Gift annuity payments are fixed.

They never go down or up.

Charitable Gift Annuities are not insured.

A charity could become insolvent and be unable to make annuity payments.

Any state guaranty fund does not protect most gift annuities.

The National Association of Insurance Commissioners has adopted two models to regulate CGAs.

  1. The Charitable Annuities Model Act (#240) contains a detailed licensing scheme for CGAs.
  2. The Charitable Gift Annuities Exemption Model Act (#241) calls for a simplified registration mechanism.

Who offers a charitable gift annuity?

Many individuals are charitably inclined later in life.

They want to benefit their school alma mater or benefit their church, synagogue, or temple.

They want to give away assets while living but would still like some form of income from those assets while still alive.

The Charitable Gift Annuity can satisfy the desire to make gifts while still living to improve retirement cash flow.

Many charitable and religious organizations will accept gifts for charitable gift annuities and then purchase an immediate annuity to fund the cash flow promised on a charitable gift annuity.

This then allows the charity to utilize the remaining funds after purchasing the immediate annuity.

In this way, an individual donor can benefit the charity while at the same time turning a non-productive asset into a lifetime income stream.

The charity benefits, the donor benefits, and the donors receive lifetime cash flow and an income tax deduction based upon the value of the gift remaining with the charity.

This makes for a win-win situation for everyone.

What is a Deferred Gift Annuity?

A deferred charitable gift annuity is a deal where you give your money, and in return, the charity pays you fixed payments for the rest of your life. They start on a day that you choose at least 1 year after the money was given.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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