Working with an Annuitant to Assign their Annuity Interest to Your Organization
An annuitant who concludes that he or she no longer needs the annuity payments – and won’t need them in the future either – could choose to assign to the charity the right to all future payments. If it is irrevocable, the assignment effectively terminates the annuity. When this happens, the annuitant may receive a charitable deduction for contributing her remaining interest in the annuity.
Some charities selectively encourage annuitants to relinquish their annuity interest. There may very well be individual situations in which an annuitant is receiving payments but no longer needs them. If the charity does not bring this to the attention of the annuitant, she may be unaware that the remaining annuity interest can be donated to the organization with the possibility of receiving a charitable deduction in return.
Other charities take a broader approach to getting the word out about this option. One way is to include an article in a newsletter. Another is to send a specific mailing or email addressing only this topic. Organizations have reported that annuitants do indeed follow up with them to learn more or to move ahead with terminating the annuity.
When is this permissible?
Whether a permanent assignment to the issuing charity is permissible depends on the wording of the gift annuity agreement. Many agreements, such as those found in PG Calc’s Planned Giving Manager (PGM) software, contain language along the lines of “This annuity is non-assignable except that it may be assigned to the charity.” Other agreements, however, indicate that the annuity may not be assigned, period. Still, such language might not preclude an assignment. For example, legal counsel for the charity and for the annuitant might determine that preventing an assignment to the issuing charity would be contrary to the public policy of the state whose law governs the agreement. You will want to check with your organization’s legal counsel before promoting this idea.
More information on the charitable deduction
As mentioned previously, an annuitant’s assignment of the annuity interest may qualify for an income tax charitable deduction. However, the amount of the deduction might turn out to be modest, or even zero if the assignment is made at a point when annuity payments are being taxed entirely as ordinary income. This is because the deduction is the lesser of (1) the present value of the remaining annuity payments or (2) whatever portion of the original investment in the contract has not already been returned as payments have been made.
Is an appraisal needed?
Although a gift annuity is fundamentally just a series of cash payments made to a person for life, if an annuitant assigns to the charity his or her interest in the remaining payments, the annuitant is not making a gift of cash. Rather, the annuitant is giving a non-cash asset, specifically the right to receive cash in the future. If the charitable deduction associated with this right exceeds $500, the annuitant must complete Section A of IRS Form 8283 in order to claim the deduction. If the deduction exceeds $5,000, then Section B of the form will need to be completed, as well. Completion of Section B, in turn, will require the donor to secure a qualified appraisal. PG Calc can be engaged to provide one if necessary.
The steps for this process are quite simple. After contacting annuitants and receiving responses, you can use PGM to calculate the present value of the remaining annuity payments and compare it with the unreturned investment in the contract. We also have suggested language for a document you can provide to your annuitants if they should decide to take this step.