Gift Annuities Benefit Donors, Nonprofits

Charitable annuities are the gifts that keep giving.

These vehicles allow individuals to support a charity, reduce their tax bill and secure a steady stream of payments for life.

The rates paid to annuity beneficiaries are scheduled to decrease in February, but they're still attractive in today's depressed market.

The American Council on Gift Annuities, a nonprofit that sets the rates that guide annuity payments, cut its recommended rates by .4% to .7% for annuities funded after Feb. 1.

But with guaranteed rates of 5.3% to 9.5% for individuals 65 and older, gift annuities compare favorably with cash-like investments. Five-year certificates of deposit are yielding 2.78%, for example, and the yield on 10-year Treasurys is 2.67%.

For someone seeking a fixed payment, "in the midst of a recession, those rates still look pretty good," says Tony Martignetti, managing director of Martignetti Planned Giving Advisors.

The annuity rate reductions are a result of deep declines in both long and short-term interest rates — markers used in calculating rates, says Cam Kelly, assistant vice president for principal gift programs at Duke University, who chairs the council's rates committee. Lower rates will help charities preserve their assets.

Charities aren't required to adopt the recommended rates but most will, Kelly said.

Under the new rates, a 70-year-old donor making a charitable gift of $100,000 would receive $5,700 a year, down from $6,100 under the current rates. Tax advantages vary with an individual's specific circumstances.

People with existing contracts aren't affected by the lower annuity rates.

Annuity rates are set with an eye toward the nonprofit receiving about half the donor's initial contribution.

Those concerned with maximizing their payments in retirement can typically receive higher payments from commercial annuities.

"You have to have a charitable intent to create one of these," said Jonathan Lander, vice president and senior wealth planner with PNC Financial Services Group Inc.'s wealth management business.
Tax Benefits