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Top 7 Questions to Ask About Gift Annuity Rates
Q I already have a gift annuity, which I established when the old rates applied. Will the payments I receive now be increased?
A No, they will remain the same.
Q What if there is a rate decrease next year? Will the amount I receive then be reduced?
A No, it will not be affected. When you establish a gift annuity, you lock in the amount of the payment. It is not affected by the rise and fall of interest rates nor by fluctuations in stock prices. One of the major reasons gift annuities appeal is the security of predictable payments.
Q My spouse and I are both aged 76. If the annuity payments are made to both of us and then to the survivor, will the payments be smaller than if the payments were made to just one of us?
A Yes, if payments are made to the two of you jointly and then to the survivor (two-life annuity), the payments will be smaller than if they were made just for the life of one of you (one-life annuity). That is because your joint life expectancy is longer than the life expectancy of each of you. Most couples choose a joint-and-survivor gift annuity, even though the gift annuity rate is lower, because they want to ensure payments for the surviving partner.
Q Who determines the gift annuity rates?
A Each charity decides its rates, but with few exceptions charities follow the maximum rates suggested by the American Council on Gift Annuities (ACGA). This organization and its predecessor, the Committee on Gift Annuities, has been publishing suggested rates since 1927. With the professional assistance of actuaries and based on various factors, the organization calculates rates that will both be attractive to donors and result in a substantial portion of the contribution remaining for charitable purposes.
Q Why did the ACGA raise rates at this particular time?
A Primarily, it is because of rising interest rates. The old rates were calculated when interest rates were at historic lows, but recently they have been steadily rising. Other factors, such as mortality experience, are also taken into consideration, but gift annuity rates are particularly sensitive to interest rates.
Q How do the rates a charity pays affect the tax benefits of a gift annuity?
A An increase in the annuity rate will reduce the size of the charitable deduction to some degree, but the advantage of a larger payout rate will outweigh the disadvantage of a somewhat smaller deduction. Another tax benefit that continues with higher rates is the fact that the payments are favorably taxed. For instance, a portion of the payments is generally tax-free for the duration of life expectancy.
Q Is a gift annuity safe?
A A gift annuity is a general obligation of the charity and is backed by all of the charity’s assets. Charities also generally maintain a reserve fund with sufficient, actuarially determined reserves to ensure payments. In fact, this is a requirement of certain states that regulate gift annuities. Because of these practices, default on payments is extremely rare. |
