Charitable gift annuities are a very flexible way to make charitable gifts to Lake Forest Academy, providing a fixed income for life for you and/or others you choose. They are easy to create and can be funded with gifts of relatively modest amounts. See Example
Here’s how a charitable gift annuity works:
- You transfer cash or other assets to Lake Forest Academy. This is accomplished through the completion of a simple agreement and can normally be done by mail.
- You will receive fixed payments annually (or more frequently, if desired). The amount of your payment is a percentage of your gift at the time your gift is funded and will not change with interest rate and investment market fluctuations.
- You will be entitled to an immediate charitable income tax deduction for a portion of the amount used to fund your gift annuity, which may reduce your federal and/or state income tax.
- A part of each payment is received tax free for a period of time.
- If you would like, you can also choose to name another person (often a spouse, parent or sibling) to receive payments with you, instead of you, or following your lifetime for the remainder of his or her life.
- The assets used to fund your gift annuity will generally be removed from your estate for probate and tax purposes.
Many people choose to fund more than one gift annuity over time. As payment rates increase with age, each gift annuity generally features larger payments.
When property such as stock, mutual funds, or other securities that have increased in value is given for a gift annuity, the charitable deduction can be based on the full value of the property, not just its original cost. Additional tax savings may be possible through the reduction, elimination or delay in reporting any long-term capital gain that might otherwise be realized if assets were sold.
- Maureen Davis, age 70, will transfer assets valued at $10,000 to Lake Forest Academy in exchange for a charitable gift annuity, which will provide payments for life.
- The payments will be 4.7% of the gift amount annually, which is $470 per year. For the first 15.9 years, approximately $379 (about 81% of the payments) will be received income tax-free.
- The gift will result in an immediate charitable income tax deduction of $3,981. Additionally, the $10,000 given in exchange for the annuity will not be subject to estate taxes.
- At the end of the annuity period the amount of the gift, less the cost of making the life payments, will be used by Lake Forest Academy to further its mission.
The assumed date of transfer for this example is June 22, 2021. This example has used the June 2021 IRC Section 7520 discount rate of 1.2% to optimize the charitable deduction.
NOTE: This calculation is provided for educational purposes only. The type of assets transferred, the actual date of the gift, and other factors may have a material effect on the amount or use of your deduction. You are advised to seek the advice of your tax advisors before implementing a gift of this type.
See the Gift Annuity Rate Table for examples of gift annuity rates for one or two persons at various ages.