By Rebecca Harris
JACKSON – Are you interested in a charitable gift that provides you income? It is not often that a person can give a gift to a charitable organization and receive income in return. However, the Catholic Foundation can work with an individual on a Charitable Gift Annuity (CGA). Some people are scared by the idea, but the staff at the Catholic Foundation can walk anyone through the process. Simply put, a CGA is a simple contract where a donor makes a gift and in return receives fixed payments for life. The remaining balance of the gift benefits a designated parish, school or Catholic organization in the Diocese of Jackson.
A CGA is a contract between an individual and The Catholic Foundation where, in return for a gift, the Foundation agrees to pay the individual a fixed amount of money annually for the donor’s lifetime. After the individual’s lifetime, the balance in the annuity account is given to the Foundation to support a ministry, parish or school in our diocese. The Foundation will work with a donor to determine what is meaningful to them.
The Foundation follows the rates set by the American Council on CGA’s, an independent nonprofit organization that recommends charitable gift annuity rates for use by charities nationwide. Life expectancy is one factor used in determining the rates. Therefore, older donors qualify for higher annuity rates compared to younger donors. Gift annuity payments are a general obligation of the Foundation. Even if an individual gift annuity account is exhausted, the Foundation will still make annual payments for life to the annuitant.
There are tax benefits associated with a charitable gift annuity. In the year that a donor establishes a gift annuity, he or she is eligible to claim a charitable contribution income tax deduction for that tax year. The deduction amount is equal to the present value of the gift amount. If the donor cannot use the entire deduction amount in the first tax year (because the deduction exceeds the amount of income that may be offset), the deduction may be carried forward for up to five years. Donors should always consult their own tax advisers before making a gift. Each payment is partially tax-free for several years, a period measured by the donor’s life expectancy. After that period, the entire payment will be treated as ordinary income to the donor. If the donor funds the gift annuity with appreciated securities (whose market value exceeds the cost basis) that have been owned for more than one year, a portion of the capital gains tax (that would be due if the donor sold the stock) is avoided. The rest of the capital gains tax is paid ratably (proportionally) over the donor’s life expectancy period.
The process to set up a CGA is simple. All the staff needs to get started is the donor’s name, date of birth including the month, day and year, address and the amount with which he or she wishes to fund the CGA. If a donor is going to include a spouse, the foundation will need their information as well.
Once the CGA is established, the donor will receive a monthly payment. Donors can even defer payments. In fact, the longer someone waits to receive payments, the higher the percentage will be, thus the higher the income will be. Seed funds for CGAs can come from cash, stock and securities. Donors can use an IRA or retirement account; however, the IRS will not allow an investor to simply roll those over into a CGA without paying taxes on those monies since the donor will be receiving the tax deduction for the CGA. Once the CGA is established the donor may not withdraw funds. The IRS sees this to be a charitable gift that is irrevocable.
For more information, please contact Rebecca Harris at (601) 960-8477 or Rebecca.firstname.lastname@example.org. A staff member is a phone call away. He or she will provide you with a detailed illustration showing a personalized payment rate, income tax deduction for the year and capital gains savings before the donor makes the gift.
(Rebecca Harris is the Director of Stewardship and Development for the Diocese of Jackson.)