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A charitable gift annuity (CGA) provides a structured way to give to charity while securing your own future. A gift annuity purchaser secures immediate tax relief, in addition to a tax free post retirement income stream. The way this works is that in return for a lump sum gift contribution, the charity guarantees you a steady income for the rest of your life, either immediate or deferred.


In exchange for a gift to a registered 501(c)(3) tax deductible non-profit charitable organization, the donor is guaranteed an agreed upon lifetime income. As is the case with insurance companies, the reputation and financial stability and long term viability of the charitable organization plays a big part in helping the donor decide. The American Council on Gift Annuities (ACGA), established in 1927, is primarily responsible for setting standards and maximum rates of return by the recipients of the CGA.

Under normal circumstances, with the donor expiring at or around the actuarial life expectancy, the charity would have paid back a combination of interest and principal, leaving behind a remainder of around 50% of principal for the charity.

Once the initial agreement is brought into effect, how the charity chooses to invest the funds is solely the charity’s responsibility. If the charity makes direct investments, or gets an asset manager, the charity is liable for a certain amount of risk, in case the donor outlives life expectancy levels or the value of the investment is reduced due to non performance. If the gift amount paid by the donor is no longer sufficient to cover continued payments, then the charity has to continue making payments using other resources.

However, if the charity takes the donor’s entire amount and purchases an immediate or deferred annuity, this reinsurance transaction provides significant savings for the charity, since the cost of the reinsurance is well below the amount gifted by the donor. This difference represents immediately accessible cash for the charity. Reinsurance with a reputed insurance company also reassures donors about their guaranteed payments.

A prime example where a CGA actually produces big savings is when capital gains are a significant issue. Consider a physician who purchased a clinic for $100,000 20 years ago, which has now appreciated in value to $500,000. If he plans to sell off the clinic, capital gains for $400,000 would be applicable. If, however, the physician gifted the clinic to his non-profit hospital, he would be assured of a regular income stream and tax deductions based on the current value of the clinic, while the hospital would not be liable for the massive capital gains tax.

Ultimately, one has to retain a certain charitable element, but done in consultation with a savvy financial planner, a CGA is a gift that will keep on giving, to both donor and charity.