Flexible Joints – Concurrent and Consecutive Joint Annuitants

Charitable gift annuities (CGAs) provide annuity payments to one or two annuitant(s) for their lives, and the remaining assets become the charity’s property when the annuitant(s) pass(es) away. The annuity payout rate is calculated based on the life expectancy of the annuitant(s). The annuity payment amount is determined by multiplying the annuity payout rate times the amount of the initial gift funding the CGA. The annuity payments will remain at the same fixed amount throughout the annuitant(s) lifetime(s).

Concurrent and Consecutive (a.k.a. Successive) Joint Annuitants

The payout rate for a joint annuity or a two-life annuity is calculated based on the joint life expectancy of the two annuitants. The CGA agreement will specify if the joint annuitants receive annuity payments concurrently (at the same time) or consecutively (one after the other). Annuity payments for concurrent annuitants continue for the lifetime of the surviving annuitant. When one annuitant dies, the annuity payments continue to be paid to the surviving annuitant for life. Annuity payments for consecutive annuitants are made to the first annuitant for his/her/their lifetime, and the payments will continue to the second annuitant for life if the second annuitant survives the first annuitant.

The annuity payment amounts will be the same for CGAs with concurrent or consecutive joint annuitants. Annuity payments to joint annuitants are expected to continue for a longer period of time than payments to a single annuitant. Therefore, the payout rate for CGAs with joint annuitants is typically lower than CGAs with single annuitants.

Reportable Capital Gains - Joint Donors and Joint Annuitants

If a CGA is funded with capital gain property, the relationship between donors and annuitants affects the taxation of reportable capital gains. For example, if a married couple donates joint appreciated property to a CGA, the reportable capital gain will be treated differently for concurrent and consecutive joint annuitants. It is common practice that the annuity payments to concurrent annuitants will include the reportable capital gain ratably over their joint life expectancy. If the spouses are consecutive annuitants, half of the reportable gain will be taxed at the time of the gift to the successor annuitant, and half of the reportable gain will be reported ratably over the life expectancy of the first annuitant. If a CGA is funded with jointly-held appreciated property and only one spouse is a joint annuitant, half of the reportable capital gain will be taxed at the time of the gift and half of the gain will be spread ratably over the spouse annuitant’s life. The aforementioned scenarios are based on common practice as the Treasury Regulations do not specifically address capital gain reporting in these situations.

Reportable Capital Gains - Single Donor and Joint Annuitants

If a single donor contributes appreciated property to a CGA with joint annuitants and the donor is not one of the annuitants, the reportable capital gain is taxed to the donor at the time of the gift. If the single donor is one of two concurrent annuitants, the donor will be taxed on half of the reportable gain at the time of the gift. The other half of the reportable gain will be spread ratably over the donor’s life. If a donor contributes appreciated property with the donor as the first of two consecutive annuitants, the reportable gain can be spread ratably over the life expectancy of the donor as the first annuitant.  If a donor is not the first annuitant, the reportable capital gains will be taxed at the time of the gift.

How to Choose Between CGAs with Concurrent and Consecutive Joint Annuitants

Capital gain recognition should be considered when funding a CGA with appreciated property for joint annuitants. The reportable capital gains may be taxed immediately at the time of the gift, spread ratably over the life of the donor, or a combination thereof. The charitable deduction should also be taken into account, because a larger charitable deduction could help offset reportable and taxable capital gains at the time of the gift. The donor should review the tax implications when funding a CGA with appreciated property.

Conclusion

The choice between concurrent and consecutive joint annuitants may focus on income tax considerations, such as capital gains and charitable deductions, for the donors and the annuitants. The plan may be simply to defer payments to a consecutive annuitant or to provide more income to the first annuitant as they age. It is important to distinguish between concurrent and consecutive annuitants when creating CGAs with joint annuitants.