Wealth Building

7 Little-Known Gift Annuity Applications

A gift annuity (CGA) is a popular planned giving tool. They have been around for over 100 years. They are easy to understand, simple to set up and don’t have the higher administrative costs associated with other charitable giving techniques.

Most people think the income from a gift annuity is for the life of the donor or for the joint lives of the donor and spouse. There are, however, at least seven other ways a CGA can be used. Let’s take a look at the two traditional applications and then summarize the other seven options. Perhaps these will plant a seed for their use in your situation that will also benefit your church.

Your Life Only

This is the most common and straightforward way a gift annuity is structured. You contribute cash or an appreciated asset to your church in exchange for a life income. At your death, the church keeps your contribution for its use.

For as Long as You and Your Spouse Live

You can also set a gift annuity up to pay out for as long as either you or your spouse lives. This is the joint and survivor CGA option.

Here are the 7 techniques you may not be familiar with…

1. For as Long as You and Another Person Live

The other annuitant does not have to be your spouse. For example, a woman could establish a gift annuity for her and her sister.

2. For the Life of Someone Other than You

Furthermore, the gift annuity does not have to be for you. You could have a disabled child who requires special care and set up a CGA to fund that care for the rest of their life.

3. Any of the Above, But the Payments are Deferred for a Number of Years

Most gift annuities are paid out monthly, quarterly, semi-annually or yearly. Normally, the payments begin within the first year. However, it is possible to defer the start of the payments for a number of years.

For example, a person who is age 55 could set up a charitable annuity with the idea that the payments would begin at age 65 to supplement their retirement income. Deferred charitable annuities have the advantages of a higher payout and an increased charitable deduction.

4. To Fund Education for a Child or Grandchild

Another example of a deferred gift annuity is funding the education for a child or grandchild. You set up a gift annuity now for your five year old grandson and when he is 18 and off to college, the CGA can be triggered to pay out over the next four or five years. There is some risk as the boy is not obligated to use the funds for college. You could be funding his Corvette Z06.

5. The “Re-insured” Gift Annuity

In my opinion, this technique should be employed more often because it provides cash for the church immediately.

Instead of holding the contribution to a gift annuity, then investing and paying out the promised payment, the church buys a commercial immediate annuity from an insurance company. The insurance company is instructed to send the (i.e. quarterly) payments to the church and a check is cut to the donor.

The cost of the immediate annuity will vary and is dependent on several factors such as the age of the donor and the prevailing interest rate in the economy. Nevertheless, the cost of the immediate annuity is less than the amount received from the donor. This difference is available to the church immediately.

6. Exchanging a Charitable Remainder Unitrust for a Gift Annuity

If you are the income beneficiary of a charitable remainder unitrust (CRUT), you can exchange this interest for a gift annuity. This move can satisfy many objectives.

This gives you another charitable income tax deduction for the new CGA. The advantage to the charity is that is frees up money immediately that may be needed for a building campaign.

7. Creating a Gift Annuity at Death With an IRA

All, or a portion of, your IRA can be exchanged for a gift annuity at your death. This would be a way to establish a safe, consistent income for your surviving spouse for as long as he/she lives with the funds ultimately going to the church you both desire it would go to anyway.

Your estate would get a charitable deduction for the charitable portion of the charitable annuity. However, the IRA proceeds would still be income in respect of a decedent and subject to ordinary income taxes.


These explanations of the various uses for a gift annuity only represent the tip of the iceberg. If one or more apply in your situation, you’ll need to consult a qualified tax professional. Each technique has positive and negative income and gift tax results.

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