0
1/1/2019
1/1/2018
1/1/2017
1/1/2016
1/1/2015
Donor 5,000
FiveThousandandno/100
Charity
Charitable Gift Annuities
All slides are
taken from this
book.
Available from
Amazon.com
Full color version available at
www.createspace.com/4707238
…
An initial gift
is exchanged
for lifetime
income
2014
2015 2016 2017 2018 2019 … Death
Example donor
ages & rates
July, 2013, American Council on Gift Annuities
30 2.6%
40 3.0%
45 3.3%
50 3.7%
55 4.0%
60 4.4%
...
Donor, age 55 gives $100,000 in stock and
the charity pays $4,000 per year for life
Initial Gift
Annual Payments
1/1/2018
...
2015 2016 2017 2018 2019 … Death
…
2014
ACGA suggested
rates leave about
half of initial gift
for charity at
death
2015 2016 2017 2018 2019 … Death
…
2014
IRS requires
present value
of charitable
share >10%
Charitable gift annuity
measurements
App. $15 billion total
Avg. annuitant age 78
Avg. duration 14 years
Avg. size $60,000...
I want to make
a large gift, but
I am afraid I
will outlive my
assets and be
left with no
income
2015 2016 2017 2018 2019 … Death
…
2014
Lifetime
income
prevents the
donor from
giving “too
much”
I am leaving an estate
gift, but would like an
immediate tax
deduction and
income
2015 2016 2017 2018 2019 … Death
…
2014
If estate gift
is already
desired, CGA
adds current
deduction &
income
I want income
that won’t
change(CRUT or PIF)
or
run out(CRAT)
…
Payments are
a fixed
obligation of
the charity,
regardless of
market events
2015 2016 2017 2018 2019 … Death
2014
Large charitable gift annuity use
increased following market volatility
A charitable gift
annuity backed by
all assets of ...
I want a simple
way to give a small
amount but still get
income and a tax
deduction
Charitable
Remainder Trust
Flexible & Expensive
• $4,000-$12,000 setup with
$1,000-$5,000 annual
administration
• Minimum ...
I want to make a
gift and get
income,
but I want to
see the
impact of my
gift while I
am alive
…
Some charities
immediately use
the net gift [gift -
value of expected
payments]
- =Net
Gift
2015 2016 2017 2018 2019 … D...
…
The income
payments are a
general
obligation of
the charity
2014
2015 2016 2017 2018 2019 … Death
…
2014
If the charity
dies, the donor
payments may
cease
2015 2016 2017 2018 2019 … Death
Oct, 2013: See information at http://www.acga-web.org
Charitable Gift Annuity Reserve Requirements
Operational requirement...
…
2014
IRS 990s show
charity’s
financial health
w w w. g u i d e st a r. o r g
2015 2016 2017 2018 2019 … Death
…
2010
The payments
are for life, not
for term of
years
2015 2016 2017 2018 2019 … Death
2015 Death 2016 2017 2018 2019
…
2014
No refunds for
early death
2015 2016 2017(death 1) 2018 2019 … death #2
…
2014
Charitable gift
annuity for
two lives
$5,000
$5,000
$5,000
$5,000
$5,0...
Example donor ages
and ratesJuly, 2013, American Council on Gift Annuities
Younger Older
Age Age Rate
30 30+ 2.3
40 40+ 2....
…
2014
Deferred gift
annuity: Each year
the donor waits,
the remaining
payment size
increases
2015 2016 2017 2018 2019 … D...
…
2014
ACGA suggests
3.25% compound
annual increase in
remaining
payment size
(July, 2013)
2015 2016 2017 2018 2019 … Death
…
2014
Donor could leave
all to charity but
always keep
emergency right to
income by
perpetual deferral
2015 2016 2017 201...
2015 2016 2017 2018 2019
2014
Donor could gift
remaining
annuity if
income was no
longer needed
Rights to all
future
payme...
2015 2016 2017 2018 2019 … Death of annuitant
…
2014
Donor can
name a
different
person as the
annuitant
2025 2026 2027 2028 2029 … Death
…
2014
Donor can name
grandchild as life
annuitant with
first payment to
start at age 18
...
The annuitant might live too long
One person living too long in a large pool
of similar sized annuities is not a problem,
because others will probably die e...
Many charities have a small pool or a pool
with a few very large annuities, creating a
greater risk of an overall imbalanc...
Risk Question
Why is an annuity
for an 80 year old
riskier for the
charity than one
for a 40 year old?
What is the chance the charity could
make twice as many payments as
expected?
80 year old
female payout is
based upon life...
Risky practices:
Using actuarial value
of gift up front
• No room for error in
annuitant longevity
• Standard IRS tables d...
Risky practices:
Issuing a gift annuity in
exchange for difficult to
value/sell contributions
• Appraised value allows the...
Risky practices:
Giving all to a restricted account at death
Wheredofundscomefromforthosewith
longliveswhoexhausttheirinit...
As charities move away from secure, fixed
income investments of appropriate
duration, investment risk increases
Reinsurance exactly matches
income to liability
Payments Payments
Charity Insurance
CompanyDonor
Charities can reinsure al...
Financial advisors
and gift annuities
• Managing gift annuity
asset pools for
nonprofit
organizations
• Selling commercial...
Charitable gift
annuities exempt
from securities
regulation except
• If sales commissions
paid
• Where marketed
primarily ...
1/1/2019
1/1/2018
1/1/2017
1/1/2016
1/1/2015
Donor 5,000
FiveThousandandno/100
Charity
Charitable Gift Annuities
Help me
HERE
convince my bosses that continuing to build and
post these slide sets is not a waste of time. If
you work for...
If you clicked on
the link to let
me know you
reviewed these
slides…
Thank
You!
This slide set is from the curriculum for
the Graduate Certificate in Charitable
Financial Planning at Texas Tech
Universi...
Charitable Gift Annuities
Charitable Gift Annuities
Charitable Gift Annuities
Charitable Gift Annuities
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Charitable Gift Annuities

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Transcript of "Charitable Gift Annuities"

  1. 1. 1/1/2019 1/1/2018 1/1/2017 1/1/2016 1/1/2015 Donor 5,000 FiveThousandandno/100 Charity Charitable Gift Annuities
  2. 2. All slides are taken from this book. Available from Amazon.com Full color version available at www.createspace.com/4707238
  3. 3. … An initial gift is exchanged for lifetime income 2014 2015 2016 2017 2018 2019 … Death
  4. 4. Example donor ages & rates July, 2013, American Council on Gift Annuities 30 2.6% 40 3.0% 45 3.3% 50 3.7% 55 4.0% 60 4.4% 65 4.7% 70 5.1% 75 5.8% 80 6.8% 85 7.8% 90+9.0%
  5. 5. Donor, age 55 gives $100,000 in stock and the charity pays $4,000 per year for life Initial Gift Annual Payments 1/1/2018 1/1/2017 1/1/2016 1/1/2015 1/1/2014 Donor 4,000 FourThousandandno/100 Charity
  6. 6. 2015 2016 2017 2018 2019 … Death … 2014 ACGA suggested rates leave about half of initial gift for charity at death
  7. 7. 2015 2016 2017 2018 2019 … Death … 2014 IRS requires present value of charitable share >10%
  8. 8. Charitable gift annuity measurements App. $15 billion total Avg. annuitant age 78 Avg. duration 14 years Avg. size $60,000 Min. size $5,000-$10,000 Clontz, Bryan (2010) Managing risks in CGA programs, American Council on Gift Annuities 29th Conference on Gift Annuities, April 28-30, New Orleans, LA
  9. 9. I want to make a large gift, but I am afraid I will outlive my assets and be left with no income
  10. 10. 2015 2016 2017 2018 2019 … Death … 2014 Lifetime income prevents the donor from giving “too much”
  11. 11. I am leaving an estate gift, but would like an immediate tax deduction and income
  12. 12. 2015 2016 2017 2018 2019 … Death … 2014 If estate gift is already desired, CGA adds current deduction & income
  13. 13. I want income that won’t change(CRUT or PIF) or run out(CRAT)
  14. 14. … Payments are a fixed obligation of the charity, regardless of market events 2015 2016 2017 2018 2019 … Death 2014
  15. 15. Large charitable gift annuity use increased following market volatility A charitable gift annuity backed by all assets of a large charitable institution A charitable remainder annuity trust backed by donor’s initial investment
  16. 16. I want a simple way to give a small amount but still get income and a tax deduction
  17. 17. Charitable Remainder Trust Flexible & Expensive • $4,000-$12,000 setup with $1,000-$5,000 annual administration • Minimum feasible investment amount $50,000 - $100,000 Charitable Gift Annuity Simple & Cheap • No donor costs for setup or administration • Minimum investment amount $5,000 or $10,000
  18. 18. I want to make a gift and get income, but I want to see the impact of my gift while I am alive
  19. 19. … Some charities immediately use the net gift [gift - value of expected payments] - =Net Gift 2015 2016 2017 2018 2019 … Death 2014
  20. 20. … The income payments are a general obligation of the charity 2014 2015 2016 2017 2018 2019 … Death
  21. 21. … 2014 If the charity dies, the donor payments may cease 2015 2016 2017 2018 2019 … Death
  22. 22. Oct, 2013: See information at http://www.acga-web.org Charitable Gift Annuity Reserve Requirements Operational requirements NONE: AL, IN, KS, KY, LA, MA, MI, MN, ND, TN, UT 3 years + $100,000: ID, MO, NC, OK, PA, TX, VT, VA, MT 3 years + $300,000: AK, AZ, CO, CN, GA, IA, MS, NV, NH, NM, WV, WA(+$500,000), NE(+$0) 5 years: AR, FL, ME, SC, OR (+$300,000) 10 years: CA, NJ, NY, WI, MD (in state), SD (+$500,000), HI (in state + $200,000), IL (20 years +$2MM) *Dollar figures refer to minimum unrestricted cash or publicly traded securities held by organization None Actuarial Liability Actuarial Liability + Other
  23. 23. … 2014 IRS 990s show charity’s financial health w w w. g u i d e st a r. o r g 2015 2016 2017 2018 2019 … Death
  24. 24. … 2010 The payments are for life, not for term of years 2015 2016 2017 2018 2019 … Death
  25. 25. 2015 Death 2016 2017 2018 2019 … 2014 No refunds for early death
  26. 26. 2015 2016 2017(death 1) 2018 2019 … death #2 … 2014 Charitable gift annuity for two lives $5,000 $5,000 $5,000 $5,000 $5,000
  27. 27. Example donor ages and ratesJuly, 2013, American Council on Gift Annuities Younger Older Age Age Rate 30 30+ 2.3 40 40+ 2.6 50 54+ 3.3 60 60 3.9 60 71+ 4.2 70 79+ 4.9 80 83 6.0 85 87 7.0 89 90 8.0 95+ 95+ 8.8
  28. 28. … 2014 Deferred gift annuity: Each year the donor waits, the remaining payment size increases 2015 2016 2017 2018 2019 … Death
  29. 29. … 2014 ACGA suggests 3.25% compound annual increase in remaining payment size (July, 2013) 2015 2016 2017 2018 2019 … Death
  30. 30. … 2014 Donor could leave all to charity but always keep emergency right to income by perpetual deferral 2015 2016 2017 2018 2019 … Death
  31. 31. 2015 2016 2017 2018 2019 2014 Donor could gift remaining annuity if income was no longer needed Rights to all future payments
  32. 32. 2015 2016 2017 2018 2019 … Death of annuitant … 2014 Donor can name a different person as the annuitant
  33. 33. 2025 2026 2027 2028 2029 … Death … 2014 Donor can name grandchild as life annuitant with first payment to start at age 18 (+ option to trade for lump sum tuition payment)PLR 200233023
  34. 34. The annuitant might live too long
  35. 35. One person living too long in a large pool of similar sized annuities is not a problem, because others will probably die early -24.5 -22.5 -20.5 -18.5 -16.5 -14.5 -12.5 -10.5 -8.5 -6.5 -4.5 -2.5 -0.5 1.5 3.5 5.5 7.5 9.5 11.5 13.5 15.5 17.5 19.5 21.5 23.5
  36. 36. Many charities have a small pool or a pool with a few very large annuities, creating a greater risk of an overall imbalance -24.5 -22.5 -20.5 -18.5 -16.5 -14.5 -12.5 -10.5 -8.5 -6.5 -4.5 -2.5 -0.5 1.5 3.5 5.5 7.5 9.5 11.5 13.5 15.5 17.5 19.5 21.5 23.5 B I G $ B I G $ $ $ $
  37. 37. Risk Question Why is an annuity for an 80 year old riskier for the charity than one for a 40 year old?
  38. 38. What is the chance the charity could make twice as many payments as expected? 80 year old female payout is based upon life expectancy of about 9 years. 40 year old female payout is based upon a life expectancy of about 42 years.
  39. 39. Risky practices: Using actuarial value of gift up front • No room for error in annuitant longevity • Standard IRS tables do not consider self-selection. (I.e., sick people do not buy annuities; poor people do not buy annuities.)
  40. 40. Risky practices: Issuing a gift annuity in exchange for difficult to value/sell contributions • Appraised value allows the donor to take the tax deduction • But, if charity cannot sell for appraised value the charity may lose money • If sale takes substantial time, charity would have to make annuity payments from its general operating funds
  41. 41. Risky practices: Giving all to a restricted account at death Wheredofundscomefromforthosewith longliveswhoexhausttheirinitialgift?
  42. 42. As charities move away from secure, fixed income investments of appropriate duration, investment risk increases
  43. 43. Reinsurance exactly matches income to liability Payments Payments Charity Insurance CompanyDonor Charities can reinsure all or selectively offset the risk of very large annuities
  44. 44. Financial advisors and gift annuities • Managing gift annuity asset pools for nonprofit organizations • Selling commercial annuities as reinsurance • Giving advice to current clients or a nonprofit’s donors CGA
  45. 45. Charitable gift annuities exempt from securities regulation except • If sales commissions paid • Where marketed primarily as investment, comparing “yields” or “returns” with CDs and other investments http://www.ca9.uscourts.gov/datastore/opinions/2009/06/24/07- 15586.pdf
  46. 46. 1/1/2019 1/1/2018 1/1/2017 1/1/2016 1/1/2015 Donor 5,000 FiveThousandandno/100 Charity Charitable Gift Annuities
  47. 47. Help me HERE convince my bosses that continuing to build and post these slide sets is not a waste of time. If you work for a nonprofit or advise donors and you reviewed these slides, please let me know by clicking
  48. 48. If you clicked on the link to let me know you reviewed these slides… Thank You!
  49. 49. This slide set is from the curriculum for the Graduate Certificate in Charitable Financial Planning at Texas Tech University, home to the nation’s largest graduate program in personal financial planning. To find out more about the online Graduate Certificate in Charitable Financial Planning go to www.EncourageGenerosity.com To find out more about the M.S. or Ph.D. in personal financial planning at Texas Tech University, go to www.depts.ttu.edu/pfp/ Graduate Studies in Charitable Financial Planning at Texas Tech University
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