Charitable Gift Annuities
A charitable gift annuity is a simple contract through which a donor and/or his or her designated beneficiary is provided with a stream of fixed payments for life in exchange for a gift.
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How It Works
- You transfer cash or securities to Pomona College.
- Pomona College pays you or one other beneficiary you name fixed income for life.
- The remaining balance passes to Pomona College when the contract ends at the death of the last beneficiary.
- Receive dependable, fixed income for life in return for your gift.
- In many cases, increase the yield you are currently receiving from stocks or CDs.
- Receive an immediate income tax deduction for a portion of your gift.
- A portion of your annuity payment will be tax-free.
- Gift annuities act as longevity insurance to protect income as you age.
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Questions and Answers
A gift annuity contract becomes a legal financial obligation of our charity and is backed up by all our assets.
Both have distinct advantages. A gift of cash will produce a larger tax-free portion of the annuity. A gift of stock can increase your income because of reduced capital gains cost. Both assets produce an equal annuity rate and charitable income tax deduction.
A charitable gift annuity can only be set up for one or two lives. This is typically a husband and wife, but it could be two siblings, or two friends, etc. Beneficiaries must be at least 55 at the time of the gift.
A commercial annuity, typically sold by banks and life insurance companies, will provide the owner with fixed or variable income based on commercial rates of return. These plans establish their annuity payments based on the assumption that all of the assets in the plan will be used up by the end of the income beneficiaries' lives.
A charitable gift annuity is part guaranteed annuity and part charitable contribution. The donor receives a partial income tax deduction based on the assumed value of the portion of the gift the charity will ultimately receive. A gift annuity establishes its payments on the assumption that there will be something left for the charity at the end of the contract. Often annuity rates for gift annuities cannot compete with the annuity rates of a commercial annuity because of the charitable component in the contracts. But then, there are fewer tax benefits with a commercial annuity.
Yes, you can make a gift now for an annuity contract that will defer your payments to a future date that you decide, typically sometime in your retirement years when you will need the income. In this sense, a deferred payment gift annuity can serve as a type of tax-deferred savings plan that will provide you with guaranteed income in the future.
Tip of the Day
There is a powerful way to pass assets to your heirs at a significantly reduced gift and estate tax cost, and provide years of income to Pomona College.
It's called a charitable lead trust, and if estate preservation is a planning priority for you it is definitely worth looking into.
How does it work? You transfer appreciating assets into the lead trust; the trust pays Pomona College income for a term of years; at the end of the term the balance of the lead trust passes to your heirs. Gift/estate tax on the transfer is reduced by the value of our income interest. The trust can even be set up to reduce your gift or estate tax liability to zero.
Best of all, your heirs pay nothing in capital gains tax on any appreciation in the assets that occurs during the term of the lead trust.