LegaSea Society
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 Gift Option: Charitable Gift Annuities
A gift annuity is a simple, contractual agreement between a donor and the Ocean Institute in which you transfer assets to us in exchange for our promise to pay one or two annuitants payments for life.
By donating through a gift annuity, you: (1) contract for a fixed payment for yourself or yourself and another individual, if you choose, and (2) make a gift to Ocean Institute. If you itemize deductions on your tax return, savings from the charitable deduction reduce the net cost of the gift.
For a period of years, based on a government table of life expectancies, a portion of each payment received is considered a nontaxable return of your investment in the gift. This further increases your after-tax dollars available for spending or investing.
An annuity funded with appreciated property results in these additional advantages: (1) the gain allocated to the gift portion completely avoids the capital gains tax, and (2) the portion of gain to be recognized can be spread over the expected term of the contract (provided that the donor is a primary annuitant and the annuity interest is assignable only to the charitable organization).
With a deferred payment gift annuity, the start of payments is delayed until a specific date, initially determined by the donor. Deferral of payments increases the initial income tax charitable deduction, tax savings and the annuity rate. However, it also reduces the nontaxable amounts to be received. This option is appealing to younger donors who wish to improve future income, such as at retirement. |
Understanding Annuity Rates
Annuity rates are higher for older annuitants and lower for younger annuitants, based on life expectancy. As a result, gift annuity contracts are generally more appealing to older donors because the purchasing power of a fixed dollar return can shrink over any long period, even with modest inflation.
Rates are also adjusted according to the number of annuitants, with rates for two-life contracts often lower due to the extended life expectancy. The age of an annuitant is the age reached at the nearest birthday when the contract is made, and rates are the same for men and women.
A specific annuity rate is a matter of agreement between the donor and the issuing charitable organization. Below you'll see how one-life annuity rates increase with age. These rates are recommended by the American Council on Gift Annuities and are determined periodically. Click here to view current rates.
A Case Study of Benefits
Ruth, age 75, plans to donate a maturing $25,000 certificate of deposit. Since she needs continuing income, Ruth decides to use the cash for a one-life charitable gift annuity that we will issue at the suggested rate of 6.2 percent. Payments will be made quarterly. At the time of purchase, the charitable midterm federal rate (a figure used in calculating the charitable deduction) is 3.0 percent.
Although Ruth's annuity rate is 6.2 percent, her actual earnings will be higher. Because Ruth itemizes income tax deductions, she earns a federal income tax charitable deduction of $9,639. With a marginal income tax rate of 28 percent, the tax savings of $2,699 will reduce the net cost of the gift to $22,301. Her annual payments of $1,550 will mean an effective rate of total return of 7.4 percent, which is Ruth's annual payment expressed as a percentage of the net cost. Secondly, for the next 12 years, more than half of every dollar Ruth receives will be considered a return of her investment in the contract and will not be subject to tax.
For More Information Please Contact
Dan Stetson, President
(949) 496-2274
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