What is a Charitable Gift annuity?
A Charitable Gift Annuity (CGA) is a financial arrangement in which a donor makes a substantial gift to a charity and, in return, receives a fixed annual income for life.
The arrangement is intended to be mutually beneficial to both the donor and the charitable organization. Donors gain financial security and tax benefits while supporting a cause they care about, and charities receive vital financial support.
Key Features:
- Donation: The donor transfers cash, securities, or other assets to a charitable organization.
- Annuity Payments: In exchange, the charity agrees to pay the donor (and potentially another beneficiary, such as a spouse) a fixed amount of income for life. The payment amount is based on the donor's age at the time of the gift.
- Tax Benefits: The donor may receive an immediate charitable income tax deduction for the difference between the gift amount and the present value of the annuity payments. Part of each annuity payment received may also be tax-free for a number of years.
- Remainder to Charity: After the annuitant(s) pass away, the remaining balance of the gift goes to the charity to support its mission.
Advantages:
- Fixed Income: Donors receive a predictable, fixed income for life.
- Tax Deduction: Donors can claim a charitable income tax deduction in the year the gift is made.
- Support for Charity: Ultimately, the charity benefits from the remainder of the gift after the annuitant(s) pass away.
- Partially Tax-Free Payments: A portion of each annuity payment is often tax-free, considered a return of the donor’s principal.
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