By Thomas Scholler | The Michigan Catholic

With interest rates on savings accounts, CDs and Treasury bills lower than most people can ever remember, now would be a good time to consider a charitable gift annuity arrangement with the Archdiocese of Detroit Endowment Foundation.

A charitable gift annuity is a simple arrangement between you and the foundation. In exchange for your gift of cash or marketable securities, the foundation promises to pay a fixed sum each year to one or two annuitants that you name. The amount is based on rates suggested by the American Council on Gift Annuities (ACGA). The payments are guaranteed by the general resources of the foundation, not just by the amount you give.

Because of favorable tax treatment on your transfer of property to the foundation, a charitable gift annuity could be an excellent way for you to diversify your investment portfolio to provide some fixed income at the least capital gain tax cost. You might also enjoy additional cash flow because the annuity rate most often will be significantly higher than the interest or dividend paid on the cash or stock you transfer to the foundation. Further, because a portion of the payment is a tax-free return of your investment in the annuity, your effective rate of return is even higher.  The following are some frequently asked questions:

Q: Can I name someone other than myself as an annuitant?

A: Yes. While usually the donor is the annuitant, you may name any two persons as annuitants. It is common for a donor to name his or her spouse as the other annuitant of a two-life annuity. The foundation also has arranged gift annuities for a donor’s relative as annuitant, for example, a sister or a parent.

 Q: Do the ACGA rates change from time to time?

A: The ACGA reviews its annuity rates periodically in light of changes in investment returns and mortality tables, and changes the rates if appropriate. However, once you enter into an annuity arrangement with the foundation, your rate will not change.

Q: How will I be taxed if I give appreciated stock to the foundation for a gift annuity?

A: Your transfer to the foundation is divided into two parts. One part is your investment in the annuity arrangement. The other part is a charitable gift to the foundation. A portion of the annuity payment you receive is a tax-free return of your investment in the annuity, calculated over your life expectancy. The balance of the annuity payment is taxed as ordinary income. These amounts are determined under Internal Revenue Service actuarial tables.

Q: How will I be taxed if I give appreciated stock to the foundation for a gift annuity?

A: If you give appreciated stock to the foundation for an annuity, the part of your transfer that is an investment in the annuity will be taxed as capital gain if you have held the property for more than one year. If you are one of the annuitants, you will recognize the gain as you receive the annuity payments. If you are not one of the annuitants, you will recognize the capital gain when you transfer the property to the foundation. You will not recognize any capital gain on the portion of your transfer that is considered a charitable contribution.

Q: Am I entitled to a charitable contribution deduction on my gift to the foundation for an annuity?

A:  A portion of your transfer is a charitable gift in the year of transfer. The contribution amount is calculated under IRS tables and depends on the age of the annuitant at the time of transfer. There are income limitations on the amount of your transfer that is deductible. If your contribution amount exceeds these limits in the year of the gift, the excess may be carried forward for five years, subject to the same income limitations.

Q: Is there a minimum amount I must give to the foundation for an annuity arrangement?

A: The foundation requires a minimum gift of $5,000 for an annuity arrangement.

Q: Is there a minimum age required for the annuitant?

A: The foundation requires that the annuitant be at least 50 years old at the time the annuity payments begin.

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Tom Scholler is associate director of the Archdiocese of Detroit’s Department of Development and Stewardship. The material presented in this article is for your general information on stewardship, estate planning and charitable giving, and is not intended as legal advice. Consult your attorney and tax and financial advisers for specific transactions of the points illustrated here. If you would like more information on how a charitable gift annuity would fit into your financial and estate plan, contact Tom Scholler at (313) 883-8771 or [email protected].