Lou's Top 10 Gift Annuity Questions
Lou Dindo ’54 met recently with Sal Cania, director of gift planning, to review the questions Lou asked before he began creating gift annuities at Clarkson, and how the process of gathering information guided his decision to use charitable gift annuities to help achieve his philanthropic and financial planning goals. Lou felt the questions he asked might be useful to others considering how a gift annuity might work for them. Here are Lou’s top 10 questions, and Sal’s answers:
1. What’s the difference between a charitable trust and a gift annuity?
A charitable trust is a separate legal entity that makes income payments to two or more beneficiaries for life and/or a term of years. Payments may vary and are made as long as there are assets in the trust. A charitable gift annuity is a contract between the donor and Clarkson that guarantees fixed income payments to one or two beneficiaries for life. Income payments are guaranteed based on Clarkson’s assets.
2. How is my gift annuity payout rate determined?
The payout rate is determined by your age at the time the annuity is created. Clarkson (as well as 95% of American charities) follows the rate schedule published by the American Council on Gift Annuities. The Council has been recommending rates since 1927.
3. Will my income payments ever change?
The amount of each income payment is determined at the start of the annuity and that amount never changes.
4. Which asset is best to fund my gift annuity?
That depends on individual circumstances. Gift annuities are most often funded with cash and/or appreciated stock. A gift of cash will generate more tax-free income, and a gift of stock may allow the donor to avoid or defer the recognition of the capital gain.
5. Who manages Clarkson’s gift annuities?
Clarkson has worked with BNY Mellon Wealth Management since 1999 to invest its annuity pool. Mellon prepares income payments (most beneficiaries opt for quarterly payments) and 1099R income statements each January.
6. Are there any costs to create or manage my gift annuity?
Clarkson charges nothing to create or manage gift annuities, but Clarkson does pay a 1% annual fee from the annuity pool to Mellon for its services.
7. How much is the income tax deduction from a gift annuity?
When someone creates a gift annuity, a portion of their gift is allowed as an income tax charitable deduction. That portion is determined by the age(s) of the annuitant(s) and a “discount rate” published by the federal government each month. Generally, the older the annuitant(s) and the higher the discount rate, the larger the amount of the income tax deduction.
8. Can I make additional future gifts to my annuity?
You cannot add future gifts to an existing gift annuity contract, but it is a simple matter to create another contract. And as we age, future gift annuities may be created at a higher payout rate.
9. What portion does Clarkson get from my gift annuity, and when?
Clarkson holds and invests the entire amount of the annuity for the life of the annuity. When the annuity terminates, Clarkson uses the remainder for whatever purpose the donor documents. The remainder amount will vary depending on life expectancy and investment performance.
10. Will my gift annuity count in Clarkson fundraising totals?
All gifts to create gift annuities count at full value in Clarkson’s Evolution to Excellence fundraising campaign, towards annual Roundtable recognition, and towards your next anniversary reunion.
Talking with someone who has already created a gift annuity can be very useful to someone who is considering one, so Lou has offered to help anyone who has questions about funding a gift annuity at Clarkson. You may contact Lou confidentially in Massachusetts at 978-448-2733, or email email@example.com.
Joan & Lou '54 Dindo have created 10 gift annuities at Clarkson that will someday endow a scholarship for engineering students.
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