BDQ #1: What Is a Charitable Gift Annuity, and Why Would a Donor Want One?

The BDQ (Big Dumb Question) We’ve all been there: at some point during a presentation someone says, “This may be a dumb question, but…” and the presenter (hopefully in a gracious tone of voice) says, “There’s no such thing as a dumb question,” before providing the obvious answer. But sometimes, just to yourself, you have to admit you were wondering about the same thing. That’s the idea behind this occasional series we’re calling “The Big Dumb Question” (or BDQ). Our aim is to provide easy to understand answers to basic gift planning questions – the kinds of questions you may be reluctant to ask. We’ve got a list of topics in mind (see below). Our very first BDQ is: What Is a Charitable Gift Annuity, and Why Would a Donor Want One? At the most basic level, a charitable gift annuity is simply a promise by a charity to pay a certain amount of money to someone each year for life. A charity makes this promise, in the form of a legal contract, in exchange for a charitable...

Gift Annuity Contracts Filed with State Regulators and the Legacy IRA Act

As we’ve discussed in other blog posts, it is now possible to use a qualified charitable distribution (QCD) from an IRA to fund a charitable gift annuity (CGA). Among the specific requirements set forth in Section 307 of the Consolidated Appropriations Act, 2023 (“the Act”) is that the “income interest” of such an annuity be non-assignable. Our interpretation of the Act is that the income interest in a CGA may not be assigned to anyone, including the issuing charity. Many gift annuity agreements, including those included in PG Calc’s PGM Anywhere and Planned Giving Manager (desktop) software, provide that the annuity is non-assignable “except that it may be assigned to the charity.” That exception is specifically provided for in Reg. Sec. 1.1011-2(a)(4)(ii), which allows for ratable reporting of capital gain when a long-term capital gain asset is used to fund a CGA if the annuity is non-assignable or only assignable to the charity issuing the CGA.

Analysis of the New 2023 ACGA Annuity Rates

On November 23, 2022, the American Council on Gift Annuities announced that it would be increasing its suggested maximum annuity rates, effective January 1, 2023 (the “new rates”). We now know the details of the new rates, which the ACGA made public on December 19, 2022. The new rates replace the rates that became effective July 1, 2022 (the “current rates”). The ACGA’s decision to increase its suggested maximum gift annuity rates was triggered by the sharp rise in interest rates that started in March and has continued since July.

What's the Impact of Rising Discount Rates on Charitable Deductions?

In May, the IRS discount rate (also known as the AFR, or Applicable Federal Rate) made its largest monthly increase since June 2004, rising from 2.2% to 3.0%. Your donors might be viewing this increase with dismay, as it makes new debt more expensive, from credit cards to home mortgages. But there is a reason to celebrate this increase, as it also increases the charitable deduction for the most popular life income gifts: charitable gift annuities and charitable remainder trusts.