Drawing Distinction: Key Points to Clarify with Donors Related to Charitable Gift Annuities
Best Practices
Written by Nev Major, ACGA Engagement Committee   

There can sometimes be confusion around how to accurately describe the benefits of Charitable Gift Annuities (CGAs). Certainly, we are all aware CGAs offer several benefits for donors including the potential for a tax-deductible gift to a charity they support, a guaranteed payment for their lifetime, and the potential to avoid capital gain taxes if donating appreciated securities or other property. A portion of the payments received by the beneficiary can also be tax-free for a period of time-based on the beneficiary’s life expectancy.

However, it is important to never refer to CGAs as an investment vehicle, or the payments derived from them as investment income. Because the donor receives a charitable deduction for a portion of the funds gifted to establish the CGA, the donor has made an irrevocable gift to the charity. The charity now is the sole owner of these funds and can choose to invest the funds as appropriate. The donor or beneficiary receives no additional benefit, or risk, from these CGA investments.

The payments are guaranteed by the charity for the life of the beneficiary. If the charity includes language around investments, or investment performance could be misleading to donors. The payments are made regardless and are backed by the entire assets of the charity, including funds held by the charity outside of and CGA investment pools the charity has established.

Be clear and transparent with donors, CGAs produce beneficiary payments and are not investments made by the donor.

Last Updated on Tuesday, December 15, 2020 02:55 PM