Charitable Gift Annuities

Charitable gift annuities are a very flexible way to make a gift. They can be designed to provide a fixed income for life for you and/or others you choose. They are easy to create and can be funded with gifts of relatively modest amounts.

For example, you can make a gift through a charitable gift annuity for as little as $10,000. Here’s how a University of Alabama charitable gift annuity works:

• You transfer cash or other assets to The University of Alabama's Capstone Foundation to establish your gift annuity agreement. This involves the completion of a simple agreement and can be handled conveniently by mail, if you wish.
• You will receive generous fixed payments annually (or more frequently, if desired). The amount of your payment is a percentage of your gift at the time your gift is funded and will not change with interest rate and investment market fluctuations.
• Because your gift is irrevocable, you will be entitled to an immediate charitable income tax deduction. In addition, part of each annual payment is received tax free for a period of time.
• If you would like, you can also choose to name another person (typically a spouse, parent, or sibling) to receive payments with you, instead of you, or following your lifetime for the remainder of his or her life.
• The assets used to fund your gift annuity will generally be removed from your estate for probate and tax purposes.
• You make a significant charitable gift to The University of Alabama equal to a portion of the amount used to fund your gift annuity agreement.

Many persons choose to fund a new gift annuity with the University each year. As payment rates increase with age, each gift annuity generally features larger payments. 

When property such as stock, mutual funds, or other securities that have increased in value is given for a gift annuity, the charitable deduction is typically based on the full value of the property, not just its original cost.

In addition, the part of the capital gains tax that would be due on a sale of the gift portion can be avoided at the time of the gift, and the rest of the gain can be reported over the annuitant’s life expectancy. The use of appreciated, low-yielding assets to fund a gift annuity can thus be an excellent way to completely bypass capital gains tax at the time of your gift, enjoy a current charitable income tax deduction, and gain the advantage of reporting a portion of each payment at lower, more favorable capital gains tax rates for a number of years.

Interactive Example

Maureen Davis, 70, decides to give $10,000 to UA for a University of Alabama gift annuity agreement on March 10, 2010. The payment rate based on age is 5.7%, or $570 for life. Because of the charitable gift portion of the annuity, there will be a tax deduction of $3,909 allowed for the year of the gift.

In addition, $383 of each annual payment will be received free of tax for the first 15.9 years that payments are received.

The amount of the gift annuity is also removed from a donor’s probate and taxable estates, in many cases resulting in additional savings.

To summarize, Maureen Davis has:

• Transferred $10,000 to UA in exchange for income for life.
• Arranged for payments that will total 5.7% of the gift amount annually, which is $570 per year.
• Eliminated tax on $383 (about 67% of the payments) for the first 15.9 years they are received.
• Made a gift that results in an immediate charitable income tax deduction of $3,909.
• Assured the amount used to fund the gift annuity will not be subject to estate tax or probate expenses.

Please use the Contact Planned Giving form or e-mail mailbox@advancement.ua.edu for more information about the tax and other benefits of charitable gift annuities.

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The assumed date of transfer for this example is March 10, 2010. This example has used the February 2010 IRC Section 7520 discount rate of 3.4% to optimize the charitable deduction.

NOTE: This illustration is provided for educational purposes only. The type of assets transferred, the actual date of the gift, and other factors may have a material effect on tax and other economic benefits as a result of making the gift described. The advice of your tax and other financial advisors should be sought before implementing a gift of this type.

Interactive Example

Your rate for a one-life gift annuity at age 70 will be 5.7%

Enter another date of birth for a second person here (1/1/1939) and see the two-life rate for ages 70 and 71. Your rate for a two-life gift annuity will be 5.2%

The following table lists age(s) when gift annuities start and the applicable annuity rate  (for illustration purposes only):

One Life	Rate
70	5.7%
75	6.3%
80	7.1%
85	8.1%
90+	9.5%
Two Life	Rate
70 & 72	5.3%
75 & 78	5.7
75 & 85	6.0%
78 & 82	6.1%
85 & 90	7.5%

Retirement and larger payments

Deferred gift annuities make even larger payments beginning when you retire or at another future date you choose.