Charitable Gift Annuities (CGAs) allow you to make a gift to the university while receiving a fixed and guaranteed income stream from the gift for your lifetime or the lifetime of beneficiaries you select. CGAs often allow donors to convert non-income-producing property into income-producing property while receiving a tax deduction equivalent to the remainder interest that the university will receive upon the death of the designated beneficiaries. It is important to note that the university will not benefit from the gift until the death of the beneficiaries.
When Might a CGA Make Sense?
CGAs are most commonly used by donors who wish to make a gift to the university, rely on income from the asset that they are donating, and need an income tax deduction. CGAs are also commonly used to convert low-income-yielding assets into higher-income-yielding assets. For example, someone using bank CDs to generate income may find that the income generated by giving those funds to the UIF into a CGA yields more income. However, upon the beneficiary’s death, the proceeds go the university and not the individual’s heirs.
Is an Income Tax Deduction Available for a CGA?
Gifts made via CGAs are eligible to receive an income tax deduction. Deductibility is calculated on a case-by-case basis and depends upon numerous factors, including the type of property given to fund the CGA. The UIF is happy to prepare this calculation without any cost or obligation. In addition to the income tax savings, any remaining assets in the annuity are excluded from the donor’s estate for the purpose of calculating estate taxes.
What are the Benefits?
A legacy to programs you supported during your lifetime that will continue after your death
Reduced estate taxes. Estates over $5 million for individuals dying before January 1, 2013 are subject to federal estate taxes. Congress has not passed legislation regarding estate tax provisions after this date.
Delayed recognition of income and capital gains taxes
An opportunity to increase income, depending upon current portfolio mix
Offers a guaranteed fixed payment backed by the full faith and credit of the UIF. (Please note that CGAs are not offered in every state, as they are subject to a state’s insurance regulations.)
Removal of the asset from your estate (depending upon named beneficiaries)
Are There Assets to Consider in Funding a CGA?
Appreciated securities and cash are the most common assets used to fund CGAs. Securities that have declined in value are not a good choice because the donor cannot claim the loss for tax purposes. Real estate gifts are generally not accepted as gifts to CGAs by the UIF.
Are There Assets Similar to a CGA?
Charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs) are similar to CGAs; however, they are managed in a separate trust account and are not backed by the full faith and credit of the UIF. A CRAT provides a fixed income stream. A CRUT income stream varies with the fluctuation of the trust account value on the annual appraisal date.
Contact the College of ACES Office of Advancement at 217-333-9355 and ask to speak with a major gift officer.