The Charitable Gift Annuity is a combination of a gift to charity and annuity. Since the annuity payment is a tax free return of principal, the gift annuity will provide the donor with an income. After all the payments have been made for the life of the annuitant, a favorite charity will benefit from the charitable gift. An individual transfers property to the charity and the charity promises to pay a given amount for the life of the annuitant. However, if the annuitant outlives his or her life expectancy, all later annuity payments will be ordinary income. Cash or appreciated property may be transferred to the charity in exchange for a gift annuity. In the case of appreciated property, a portion of the capital gains tax will be avoided. Gift annuities are most attractive to senior persons because the annuity amount is fixed and will not change regardless of current investments or market conditions.
- The combination of a partially tax-free income and initial charitable deduction make this opportunity attractive
- Additionally part of the income is interest earned and tax deductible