Simply put, a gift annuity is a contract between you and a charity stating that your transfer of funds — in cash or securities — to the charity will provide you with fixed guaranteed payments for life or a set term.
A portion of the funds transferred — generally between 20 and 30 per cent — constitute an immediate charitable gift for which you receive a tax receipt. The other portion of the funds is applied by the charity to purchase an annuity from a highly rated insurance company of your choice.
The annuity allows the charity to guarantee you fixed payments — either quarterly, biannually or annually. The payment amount will depend on your age and the age of any other beneficiary of the payment at the time of the gift.
So, what are the benefits?
- Guaranteed income;
- Fixed payments you receive that are largely tax free — in some cases almost entirely;
- Payments from a gift annuity are significantly higher than what you would earn in interest if you retained the funds;
- A donation receipt applicable on your income taxes;
- You become a current donor of a charity that is meaningful to you.
You do not have to be highly wealthy to make a gift annuity. It can be beneficial to anyone aged 65 or older.
Take for example a man, aged 70, who allocates $30,000 of his portfolio towards a gift annuity. If $20,000 is applied to purchase a life annuity, he can expect annual payments for life of approximately $1,300 — of which less than $100 is taxable. What’s more, he receives a tax receipt for his generous donation of $10,000.
A woman of the same age who allocates $75,000 of her portfolio towards a gift annuity, of which $47,500 is applied to purchase a life annuity, can expect roughly $2,800 annually. Less than $100 of the payments are taxable and she receives a tax receipt for a $22,500 gift she may not otherwise have been able to make.
Ask your financial planner to see if a charitable gift annuity can help you meet your financial and philanthropic goals.