Flexible Gift Annuity

Income for You—When You Need It
Photo by Ling Zhu '09The flexible charitable gift annuity is a simple mechanism that can increase your income at a specified future date, offer both current and future tax savings, and minimize your capital gains tax exposure.

The charitable gift annuity (CGA) is a contract between the donor and Colby. A simple one- or two-page document, the charitable gift annuity guarantees that the College will pay a fixed annual amount, for life, to one or two beneficiaries named by the donor. Colby's obligation to make these payments is backed by the full faith and assets of the institution and is not subject to investment performance.

The flexible charitable gift annuity allows the donor to defer the receipt of payments until some time in the future when he or she wishes to begin receiving them. The donor effectively selects a window of time during which he or she may opt for the payments to begin. The amount of the income tax charitable deduction is determined by the earliest date of that window. The amount of the annual payment (the annuity), on the other hand, is determined by the date at which the donor actually chooses to start receiving payments. In most cases payments received by the beneficiaries are partially tax exempt.

The income tax charitable deduction generated by this gift may be taken in the year the gift is made, and the resulting tax savings have the effect of reducing the cost of the gift. The table below shows the annuity rate and annual payout resulting from a $25,000 one-life charitable gift annuity established in 2012 by a 50-year-old donor who has identified a 10-year window beginning at age 65. The amount of the income tax charitable deduction is determined by the earliest date of that window; in this case, it would be $5,282.

 # Years Annuity Deferred
Year Annuity Begins
Annuity Rate
 Annual Payment
10 2027 7.6% $1,900
15 2032 9.6% $2,400
20 2037 12.8% $3,200

At Colby you may establish a flexible charitable gift annuity with a minimum gift of $5,000 in cash or marketable securities.

Calculations shown here are based on Colby annuity rates as of Jan. 1, 2012, for this scenario and on the December 2011 IRS discount rate of 1.6 percent.