Charitable Gift Annuities

student on bridge

Gift annuities are simple contracts established between donors and the college. They may be established with gifts of cash, stocks, mutual funds, bonds, and other marketable securities. When using appreciated securities such as stock, gift annuities allow donors to partially eliminate and then defer any remaining capital gain embedded in the donated securities used to fund the gift annuities. In addition, a current charitable tax deduction is recognized at the time of the gift. The tax treatment of the payment from the gift annuity is commonly more efficient compared to the interest paid by a CD or taxable bond because portions of the annuity payment may be tax free or taxed at a long term capital gain rate, which is currently lower than an ordinary income tax rate.

Gift annuities are the most popular planned gift at Whitman as well as at most charities throughout the nation. Gift annuities have provided crucial support for the college by funding scholarships, professorships, capital projects, and a myriad of other priorities at Whitman. Their popularity is driven primarily by the simplicity of establishing a gift annuity and the safety of a fixed, guaranteed payment. The gift annuity payout rates are based exclusively on the annuitant's age and are quite attractive compared to CDs and bonds.

A charitable gift annuity is an agreement between a donor(s) and Whitman College. Under the terms of a gift annuity agreement, Whitman agrees to pay a fixed lifetime annuity in exchange for the donor's charitable gift. The donor(s) also receive(s) a current income tax deduction for part of the gift's value. The gift annuity payments are not insured by any government agency but are backed by the full faith and credit of Whitman College.

Immediate Gift Annuity

An immediate gift annuity is the traditional model of an annuity. The college will begin payments immediately following receipt of a gift to establish the annuity. These payments may be structured to occur monthly, quarterly, semi-annually, or annually. Establishing an immediate gift annuity is an excellent strategy to generate a high rate of income from an asset you are considering ultimately donating to Whitman.

Example of Immediate Gift Annuity
Alumni Example of Immediate Gift Annuities

Deferred Gift Annuity

Some people do not currently need the income from a gift annuity and would prefer to defer the income to a later date. You may establish a gift annuity with Whitman with the income deferred for at least a year with your choice of either specific start date for the annuity income or a schedule of annual payment start dates. The second option, with discretionary annual payment start dates is known as a flexible deferred gift annuity (FDGA).

The flexible deferred gift annuity not only allows for the initial deferral of income to a later date specified in the annuity agreement, but it also permits additional deferrals after the first optional payment commencement date. After the first deferral, annuitants have a choice once each year to decide to either begin receiving annuity payments or defer the income an additional year. Each time an annuitant defers the income, the annuity payout rate will increase to reflect assumed investment returns. A schedule listing the increasing annuity payout rates that result from additional deferrals is created at the time the annuity is funded, and the college guarantees the rates and payouts. The appreciating annuity payout rates take into account the compounding of an assumed rate of return.

The flexible gift structure has many advantages for people interested in supporting Whitman now but who may also need additional income in the future.

  • Donors are entitled to a current charitable deduction based on actuarial calculations of projected payments to annuitants.
  • The payments from the annuity are typically tax efficient because only part of the income from a gift annuity is taxed as ordinary income.
  • The annuity payout rates are very attractive when compared to rates associated with CDs and other bonds.
  • Contributing appreciated assets like stocks or mutual funds will also allow for the partial elimination of capital gains and any remaining capital gain is amortized into the annuity payments.
  • The flexible deferred gift annuity permits continued deferral of income, and as a result, deferral of any capital gain income as well.

Example of a Flexible Deferred Gift Annuity
Alumni Example of Flexible Deferred Gift Annuities
FAQ Flexible Deferred Gift Annuities

 


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