Charitable Gift Annuities

Immediate Payment and Deferred Payment

A charitable gift annuity is a simple contract providing for our making fixed payments to you (and an optional second beneficiary) for life in return for your contribution. The gift annuity offers you the assurance of payments that will not fluctuate, and that are secured by all the assets of The Hotchkiss School.

A charitable gift annuity offers you three distinct tax benefits:

  1. You will receive an income-tax charitable deduction for your gift annuity, based on the full value of the assets you contribute minus the present value of the life-income interest you retain (see the example below for more details).
  2. If you fund your charitable gift annuity with appreciated securities, no upfront capital gains tax is payable. Only a portion of your capital gain will be reportable, and the tax will be spread over your annuity payments.
  3. Part of each annuity payment will be considered the tax-free return of your principal. This effectively increases the cash flow from your gift annuity, and is not available with other types of life-income gifts.

(The IRS provides that the capital gain and tax-free-payment benefits are in effect during your life expectancy - if you live beyond your life expectancy, the entire annuity payment will be taxed as ordinary income.)

Your gift annuity can start paying you once you make your contribution (an immediate-payment gift annuity), or payments can commence at a later date selected by you (a deferred gift annuity). Deferral allows us to offer you a higher annuity rate and gives you a larger charitable deduction.

Many younger donors create a series of deferred gift annuities over multiple years, jointly timed to begin making payments when they retire. To fund their gifts, they use assets they've already designated for retirement savings. Their deferred gift annuities give them an income tax deduction when they most need it, and an additional source of cash during their retirement years.

Example*

Comparison: Gift Annuity and Deferred Gift Annuity

*This example is based on a factor that changes monthly. Contact our office for a personal illustration based on the latest rates.

Assumptions:

> Benefactors aged 70 and 68
> Contribute securities worth $20,000

Options

Gift Annuity
paying income immediately

Deferred Gift Annuity
beginning income in 5 years

Deferred Gift Annuity
beginning income in 10 years

Contribution

$20,000 

$20,000 

$20,000 

Annuity Rate

5.1% 

6.7% 

9.0% 

Annual Payment (fixed)

$1,020 

$1,340 

$1,800 

Charitable Deduction

$6,021 

$7,743 

$10,147.00 

*This example is based on a Federal Discount Rate of 3.4%.

More

To learn more about charitable gift annuities, Email us, complete the Information Request Form, or call us at (860) 435-3263 so that we can assist you.