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Planned Giving

Benefits and Care of Flexible Deferred Charitable Gift Annuities

by Andrea Preissler | July 2018

"Do something today that your future self will thank you for."
Sean Patrick Flanery

Everyone likes flexibility when it comes to financial planning for the future. Charitable gift annuities allow donors to make a gift to a charity, receive an income tax deduction, and receive income for their lifetime. The flexible deferred gift annuity allows donors to delay the start date of the annuity payments within a specified range of years. The donors receive an immediate charitable deduction. The longer the annuitants wait to begin payments, the higher the payout percentage and therefore the payment amount will be. A portion of each payment will be tax-free return of capital until the annuitants reach life expectancy.

Flexible deferred annuities were established in 1997 by an IRS Private Letter Ruling. These annuities require some specific agreement stipulations.

    • The gift annuity agreement should specify the range of dates for the initial payment. An example of this would be, “To elect irrevocably the commencement date of payments hereunder, which shall be the last day of September and which shall not be earlier than September 30, 2027 nor later than September 30, 2037, the Donor during his life shall deliver written notice to Charity no later than ninety (90) days prior to the desired commencement date. If no election is made, annuity payments will commence on September 30, 2037.”
    • New York limits the number of years in the range for flexible deferred annuities to twenty years.
    • The charitable deduction will be the minimum that would result from the first possible beginning payment date.
    • The first possible payment date must be over one year beyond the gift date.
    • If the donor gives appreciated property and is the primary annuitant, capital gains will be spread over the donor’s life expectancy and will not be taxable until the donor receives the first payment.

A best practice for relating to flexible deferred annuitants is to send an annual letter asking if the annuitants would like for payments to begin. The letter is a way to reconnect with the annuitants as well as a reminder of the option to begin payments. If the annuitants have not elected to begin payments by the end of the date range, the payments will automatically begin. At this point the annuitants may not need the income from the gift annuity. The charity could ask the annuitants if they wish to sever the annuity. By severing the agreement, the annuitants would not receive annuity payments and could possibly receive another charitable deduction.

For those unsure of when retirement might be, the flexible deferred charitable gift annuity is a worthwhile option, a wonderful way to bless a favorite charity, and a great way to plan for an uncertain future.

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Karen Sillay will attend

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