A well-diversified portfolio can limit investment risk. Owning a variety of assets, such as stocks, bonds, and real estate, can protect your net worth when particular assets decrease in value. Coupled with asset allocation, where you have the right proportion of your total investments in different asset types, diversification can help minimize risk.

Typically, as we age we put a higher amount of our funds in fixed-income investments. Guaranteed income provides financial and psychological security. However, in today’s low-interest-rate environment, significant yield is difficult to find without incurring risk. Certificates of Deposit, a long-time haven for conservative investors, and short and mid-term US-backed securities pay less than 1% annually. Even long-term treasury bonds pay less than 2%.

For the charitably-minded person, an alternative to these common fixed-income investments is a charitable gift annuity. Charitable gift annuities provide an attractive stream of income and tax savings as well as a charitable gift to organizations that are important to you.

What is a Charitable Gift Annuity?

A Charitable Gift Annuity is a contract between you and a charitable organization that provides you with a stream of payments. It allows you to support the causes you care about while maintaining, or even increasing, the amount of income you now receive from your investments.

The Benefits of a Charitable Gift Annuity

Fixed Payments

In contrast to low-yielding fixed-income investments, a charitable gift annuity can provide attractive payments for you and another person for the rest of your lives. The payments are fixed as a percentage of the original amount given and are based on your age and the age of the other person, should you want to include them.

Charitable Deduction

When you establish a charitable gift annuity, you receive a charitable deduction for the year of the gift. The amount of the deduction is determined by the present value of the gift made.

Partially Tax-Free Payment

A portion of each payment you receive may be tax-free. The tax-free portion reflects any return in basis in the gift annuity. A gift annuity can potentially provide significant tax-free income.

Partial Bypass of Capital Gain

When you fund a gift annuity with appreciated property, part of any capital gain owed when the property is sold will be avoided. Any capital gain that must be recognized will be prorated over the life expectancy of the donor.

Consider the benefits of a charitable gift annuity funded in cash valued at $100,000 for various ages:

Age of Donor Payout Rate Percent Tax-Free Charitable Deduction Effective Rate of Return*
75 5.4% 87.0% $41,750 8.8%
80 6.5% 87.5% $46,566 10.78%
85 7.6% 89.7% $53,660 13.05%
90 8.6% 90.2% $61,989 15.28%

*Includes savings from charitable deduction and tax-free portion of annuity.

Four Types of Charitable Gift Annuities

Immediate Gift Annuity

An immediate gift annuity begins payment in the year the annuity is established. Payments may be received monthly, quarterly, semi-annually or annually.

Deferred Gift Annuity

A deferred gift annuity begins payment at least one year after the annuity is established. In return for the delay, a higher payment is made.

Flexible Gift Annuity

If you are not sure when you would like to receive payments from your gift annuity, a range of dates can be specified in the gift annuity contract. When the decision has been made to begin payments, you notify the charity.

Testamentary Gift Annuity

You can establish a charitable gift annuity in your will or trust to provide payments for someone else.

We invite you to contact us to learn more about Charitable Gift Annuities. We can provide a personalized illustration for your consideration.

This information is not intended as tax, legal or financial advice.  Consult your financial advisor for information specific to your situation.


About the Author

Randal Daugherty headshotSince 2000, Randy has served as Director of Planned Giving for Southwestern Medical Foundation and UT Southwestern Medical Center.  He works with donors to suggest bequest language to share with attorneys, establish charitable gift annuities and charitable remainder trusts, utilize beneficiary designations for retirement plan accounts and explore gifts of other non-cash assets like real estate and life insurance.  After receiving a Masters of Divinity degree from Vanderbilt University, Randy began a career in development, working in higher education, the arts and in academic medicine.  He received the Chartered Advisor in Philanthropy designation (CAP) through the American College of Financial Services.

To contact Randy Daugherty, please call (214) 648-3069 or email him at randal.daugherty@utsouthwestern.edu.