Retired persons often wish to enhance their current income. Many even want to make a contribution back to their community. These seemingly opposing wishes can be reconciled through a Charitable Gift Annuity, a form of planned giving. A charitable gift annuity involves a contribution of assets to a non-profit organization in exchange for fixed income payments under the terms of an annuity contract. Let’s examine how the annuity works.

First, how is the income amount determined? The fixed income is calculated using a fixed annuity rate (percentage) multiplied by the initial contribution. The rate (percentage) depends on the age of the person, or persons (if a couple), receiving the payments, and on the payment start date. The American Council on Gift Annuities publishes rate tables (available on-line) that many non-profits follow. These rates ensure that the charity keeps approximately 50% of the value of what was contributed to purchase the charitable gift annuity.

For example, using the current tables, a person age 70 years, seeking an immediate gift annuity for his lifetime only could expect to receive an annual return (annuity) of 5.7 percent on the value of his initial one time contribution. If he contributes $100,000, then he will receive $5,700 each year for the rest of his life. [Note: The rate would decrease slightly if he received monthly or quarterly payments.] Moreover, if a couple were to purchase a charitable gift annuity and receive payments over their combined life expectancy – so that the surviving spouse would continue to receive annuity payments –then the rate would reflect the couple’s combined actuarial life expectancy.
Second, what assets can be contributed to “purchase” the annuity? Often these annuities are purchased with cash. Sometimes a charity will accept stocks and bonds or a residence (or ranch) in exchange for the annuity.

Third, what are the tax consequences to a charitable gift annuity? If cash is contributed, then the consequences are as follows: (1) an immediate tax deduction in the year of the gift for the so-called present value of the charitable remainder; which means the excess of the initial cash contribution over the present value over the lifetime annuity income stream; and (2) annual recognition of ordinary income on the annuity interest income. If appreciated stocks or bonds are contributed, then in addition to ordinary interest income each year, capital gains will incrementally be recognized each year over the term of the annuity. Gradual recognition of the capital gains is usually much better than immediate recognition. That recognition would occur if one were to sell the stock first, and then “purchase” the charitable gift annuity.

Lastly, charitable gift annuities presume a significant charitable intent on the part of the donor. Persons charitably included who wish both to make an immediate gift while alive and increase their income, may be interested. If so, call the planned giving department of the intended non-profit organization and request literature; then evaluate this option with your financial planner.

Editor’s Note: Dennis A. Fordham is an attorney licensed to practice law in California and New York. He concentrates his practice in the areas of estate planning and aspects of elder law. His office is at 55 1st Street, Lakeport, California. He can be reached by e-mail at or by phone at 707-263-3235.



The information contained in this website is for general information purposes only. The information is provided by the Law Office of Dennis Fordham. and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this website.

Through this website you are able to link to other websites which are not under the control of Law Office of Dennis Fordham. We have no control over the nature, content and availability of those sites. The inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them.

Every effort is made to keep the website up and running smoothly. However, Law Office of Dennis Fordham takes no responsibility for, and will not be liable for, the website being temporarily unavailable due to technical issues beyond our control.

We respect your privacy. We will not sell or rent your information to anyone. The information you provide us will be used to communicate the status of your business with our firm.