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Charitable Gift Annuity

Retained Life Estate + Gift Annuity

A retained life estate plus charitable gift annuity combines two gift arrangements. The arrangements allow a donor to use some of the value of her home or farm to fund a plan that will make payments to her or others for life.

Remainder Interest

A charity's remainder interest in a planned gift equals the present value of the promise to distribute the remaining principal of the planned gift when it terminates.

In the case of life income gifts, such as a gift annuity or a charitable remainder unitrust, the charity owns the remainder interest in the gift.  In the case of a lead trust, individuals named by the donor own the remainder interest in the gift.

Reasonably Commensurate Value (RCV)

Reasonably commensurate value (RCV) is a measure of the present value of a gift annuity's payments at the time the gift annuity is funded.  As of this writing, North Dakota, Oregon, Tennessee, and Washington are the only states that require a gift annuity's RCV to appear in the annuity agreement. California also used to impose this requirement, but legislation passed in August 2005 that removed this requirement, effective 1/1/2006. 

North Dakota, Oregon, Tennessee, and Washington all accept the Investment in Contract amount as the RCV.

Publication 1457

Publication 1457 is a book of federal tables used to compute charitable remainder annuity trust and gift annuity deductions and pooled income fund deductions. The edition that contains tables based on Table2000CM is called Actuarial Values, Book 3A. It is available on the Web. The edition that contains tables based on Table 90CM is called Actuarial Values, Book Aleph. The edition that contains tables based on Table 80CNSMT is called Actuarial Values, Book Alpha.

Deferred Gift Annuity

A deferred gift annuity is a simple contract between the donor and the charity.

In exchange for an irrevocable gift of cash, securities, or other assets, the charity agrees to pay one or two annuitants a fixed sum each year for life, with payments starting at least one year after the gift. The annuitants typically are the donor or the donor and the donor's spouse. The older the annuitants are at the time of gift and the longer payments are deferred, the greater the fixed income the charity can agree to pay. The donor receives an income tax deduction for the difference between the amount transferred and the value of the annuity, subject to IRS 30%/50% limitations. The donor's deduction must be at least 10% of the funding amount.

Commuted Payment Gift Annuity

Sometimes called a “Tuition Assistance Plan,” a commuted payment gift annuity is a simple contract between the donor and the charity.

The commuted payment gift annuity is really a modified deferred gift annuity. In exchange for an irrevocable gift of cash, securities, or other assets, the charity agrees to pay one or two annuitants a fixed sum each year for life, with payments starting at least one year after the gift. The contract includes language, however, that gives the annuitant the option to commute the lifetime of payments to a fixed number of payments of equivalent value. The annuitant may commute the payments immediately or at any time prior to the date of first payment.

Build-up Gift

A build-up gift is any gift that is made in installments over a period of years.  For example, a donor might fund a deferred gift annuity each year for five years or make a series of additions to a charitable remainder unitrust.

State Reserve Percentages

The states that require charities to report annually on the sufficiency of their gift annuity reserves have maximum interest rates that they allow to be used in the reserve calculation.  The maximum interest rate allowed by a particular state depends on the state, the year of gift, and in some cases the number of years a gift's payments were deferred.

Annuity Reserves

Annuity reserves are the assets a charity needs in order to finance its gift annuity payment obligations. The amount of reserves needed to finance each gift annuity depends on the size of the annuity payments, the ages of the annuitants, and the mortality table and interest rate used.

Many charities compute annuity reserves for their own internal purposes to make sure that they have ample funds on hand to make annuity payments now and in the future.

Annuitant

An annuitant is a person who is the income beneficiary of a gift annuity, deferred gift annuity, flexible gift annuity, or commuted payment gift annuity.

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