The Donor Must Be the Owner

We frequently work to assist our clients in situations involving married couples. In some cases, the spouses are looking to establish a 2-life charitable gift annuity (CGA), whereby they will both be donors and they will both be beneficiaries (annuitants). There is no issue with potential gift tax consequences in cases where the couple’s marriage is recognized by federal law – such spouses may transfer unlimited amounts of wealth to each other without any possible gift tax. And if the CGA is funded with cash, there also is no issue with possible income tax, because there are no capital gains involved in the transfer of cash. If the gift annuity is funded with appreciated securities, however, there can be significant tax issues tied to the long-term capital gains inherent in the appreciated securities.

Gift Annuity Voluntary Termination – What to Do and How to Do It

If you have an annuitant who finds their gift annuity income “nice, but not necessary,” they may be interested in voluntarily giving up their right to future annuity payments. Voluntarily releasing, or terminating, their interest in a charitable gift annuity (CGA) allows the charity to access the residuum early. The charity can also count part of the released amount as a new outright gift. Voluntary termination is also an effective way of managing the issue of a CGA that is wasting. An annuitant who is charitably inclined may agree to terminate their annuity to spare the charity the continued expense of paying the annuity from general operating funds.

IRS Updates Rules for Computing Planned Gift Deductions

On June 1, 2023, the IRS made public Treasury Decision 9974 (TD 9974). TD 9974 contains final regulations relating to the use of actuarial tables in valuing annuities, interests for life or a term of years in property, and remainder or reversionary interests in property. A change of immediate importance to gift planners, TD 9974 requires use of the 2010CM mortality table when computing the deduction for a gift annuity, charitable remainder trust, or other split-interest gift made on or after June 2, 2023.

When Your Donor Should Consider a QCD for a CGA . . . and When They Shouldn’t!

Since January 1, 2023, it has been possible for a donor to make a qualified charitable distribution (QCD) from an IRA of up to $50,000 to fund a gift annuity. This new giving opportunity has sparked a lot of interest among gift planners. Some have already helped donors complete this type of gift. Many limitations apply to the QCD for CGA arrangement in addition to the $50,000 maximum: the donor can make this type of gift in one year only and must be at least 70 ½ years old, only the donor and the donor’s spouse can be annuitants, the gift is not deductible, the donor cannot defer the annuity payments, and all annuity payments are fully taxable as ordinary income. On the positive side, the distribution from the IRA is not taxable and counts toward the donor’s required minimum distribution (RMD) for the year. Which raises the question: Under what circumstances, if any, does funding a gift annuity with a QCD make financial sense?