Most people want to accomplish two things when thinking about their legacy. They want to take care of the people they love and support the causes that shaped their lives. Sometimes, however, these goals can seem to compete on paper. A single lump-sum inheritance can create uncertainty for heirs who aren’t prepared to manage it or sustain it.
That’s where a testamentary charitable gift annuity can offer a different approach. Instead of passing along only a pool of assets, you’re also passing along a plan. That plan can include a structured stream of income for a surviving spouse or children, followed by a charitable gift that advances a mission you care about. Additionally, because it’s arranged through your will or trust, it remains revocable during your lifetime.
Key Takeaways
- A testamentary charitable gift annuity (CGA) can create fixed, predictable income for a spouse or children while ultimately benefiting a charity.
- It may help heirs avoid the stress of investing or managing a lump-sum inheritance, because payments are structured and ongoing.
- Other options, such as non-spouse IRA beneficiaries and inherited retirement assets, generally must be distributed within 10 years.
- Planning details matter: timing, beneficiaries, and charitable purpose should be coordinated with your advisors and the charity.
In Depth Look: How Does a Charitable Gift Annuity Work
A charitable gift annuity (CGA) in your will or trust can be especially helpful in providing financial stability for a surviving spouse or children. Known as a testamentary charitable gift annuity, this type of planned gift supports not only charity but also establishes a structured inheritance for loved ones in the form of a fixed annual income.
Why might this be an attractive option?
- Heirs will have a source of income they can’t outlive.
- Recipients will receive income without the need to invest or manage the principal.
- The income isn’t limited to a 10-year period, unlike inherited IRAs.
- This gift is revocable as long as you live.
- The charity receives the annuity proceeds after the death of the recipient.
To set up a testamentary charitable gift annuity, a person should work with their advisor and the charity they want to support. Planning involves deciding how much income to direct to heirs, whether to begin the annuity at your death or defer for a period of time, and how the charity should use the proceeds to advance its charitable mission.
With thoughtful planning, a testamentary charitable gift annuity creates a lasting legacy—providing security for loved ones and meaningful support for the causes you cherish.
Charitable Gift Annuity VS an Inherited IRA
The 10-year limit (mentioned above) is a product of the SECURE Act, in which many non-spouse beneficiaries who inherit IRAs are required to distribute the account within 10 years of the original owner’s death. Please refer to IRS.gov or your advisor for the specific exceptions and additional rules to this policy. That doesn’t make inherited IRAs “bad.” It simply means the timeline can be tighter than families expect, especially when beneficiaries are trying to manage tax impact, life transitions, or uneven earning years. A testamentary charitable gift annuity is one way some donors consider adding a longer-term income component to the overall family plan.
Step-By-Step Guide to Charitable Gift Annuity
In simpler terms, a charitable gift annuity is basically a contract in which a charity or nonprofit organization agrees to make fixed payments to one or two individuals (called “annuitants”). With a testamentary CGA, that contract is created as part of your estate plan and is funded at death, typically through your will or living trust. Because it’s a testamentary arrangement, it can be changed if your plans change.
Here’s the typical flow, step-by-step:
- You include Charitable Gift Annuity language in your will or trust.
This instructs your estate to fund the annuity arrangement for your chosen annuitant(s). - At your death, the estate transfers the planned amount to the charity.
The charity then becomes responsible for the fixed payments under the annuity contract. - Your spouse, child, or other named annuitants receive fixed payments.
Payments continue for the annuitant’s life. - After the annuitant passes away, remaining funds support the charity.
That remainder advances the mission you chose to support and can go be designated to specific areas or left unrestricted to meet evolving needs.
Many organizations reference the American Council on Gift Annuities (ACGA)’s suggested maximum rates as a benchmark, but actual rates can vary by charity, annuity structure, and timing (immediate vs. deferred).
Key Features of a Charitable Gift Annuity
Predictability
Settling an estate and navigating grief can be overwhelming. A pre-planned, structured payment stream can help reduce some of the stress your heirs may face after you are gone.
Complementary
A testamentary CGA doesn’t have to be the whole plan. Many families use it to cover a specific need, while other assets transfer in traditional ways.
Simplicity
There are other tools for supporting heirs, but some involve more moving parts. The CGA idea is straightforward: fixed payments for life, then charitable remainder. (ACGA)
A testamentary charitable gift annuity is not one-size-fits-all, and there are many variables to work through. We recommend that you work with your advisor on the details. If you are interested in supporting Southwestern Medical Foundation or UT Southwestern Medical Center, please fill out the form below. One of our charitable giving experts will reach out to you to discuss options.
Contact Us About Planned Giving
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Why Planned Giving Matters
A planned gift is more than a financial tool. It is a long-term investment in the future. When donors include Southwestern Medical Foundation or UT Southwestern in their plans, they are supporting more than a hospital. They help fuel discovery, recruit and support exceptional clinicians and scientists, and strengthen patient care across North Texas and beyond.
If you’re exploring legacy options, Southwestern Medical Foundation’s planned giving resources outline well-designed gift options. Ones that support both your family and our mission to inspire progress in medicine.
FAQs
What is a testamentary charitable gift annuity?
It’s a charitable gift annuity created through your will or trust and funded at death, providing fixed payments to one or two beneficiaries for life, with the remainder going to charity.
Can I change my mind after I set it up?
Generally, yes. A testamentary gift annuity is typically revocable during your lifetime because it’s created through your estate plan.
Who can receive payments from the annuity?
Usually, one or two individuals you name, often a surviving spouse or child, who receive fixed payments for life under the annuity contract.
How is this different from leaving money outright to heirs?
Instead of a lump sum, it provides structured, fixed payments, so heirs may not need to invest or manage the principal themselves.
What is the difference between a CGA and an inherited IRA?
Many non-spouse IRA beneficiaries must distribute inherited IRA funds within 10 years, which can affect long-term planning. A CGA can provide consistent income payments throughout the annuitant’s life.
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*Not financial, tax, or legal advice. Consult a professional.
