A simple contract
A deferred or flexible gift annuity is a simple agreement between you and the American Red Cross that requires a one- or two-page contract. There are minimal or no costs to you to establish the contract and no costs at all to maintain it.
Irrevocable gift
A charitable gift annuity is an irrevocable agreement, not subject to any future revocation.
Fixed payments for life, starting when you want them
In exchange for your irrevocable gift of cash, securities, or other assets, the Red Cross will pay you a fixed amount each year for life.
- You choose the date when payments start, or a range of dates that the beneficiary can choose from. For example, you can specify that payments start in the year you plan to retire, or that the beneficiary can determine to begin payments between a specific 5- or 10-year period..
- Once your payments start, they will last for your lifetime. You cannot outlive your payments.
- Payments are predictable. Your payments will not be affected by investment performance or market conditions. You will get the same amount each year, no matter what.
- Payments are very secure. They are backed by the general resources of the Red Cross, not just by the assets you donate.
Tax-advantaged payments
Typically, part of each payment will be tax-free for many years. This tax free portion makes your payments more valuable than an equal amount of fully taxable income.
Who can receive payments?
You decide who will receive the payments from your gift annuity, but it can only be for one or two beneficiaries. Usually, this will be you, or you and your spouse but you can provide income for parents, siblings, or faithful employees.
Payment amount depends on age and years until payments start
As shown in the table below, the older you are when you start receiving payments and the longer you wait to start your payments, the greater the payment rate you will receive. If you choose other people to receive the payments from your deferred gift annuity, their ages when they start receiving payments will determine their payment rate.
Sample deferred annuity rates for a $10,000 gift
| Age at Gift | Years Deferred | Payment Rate | Payment | Deduction |
|---|
| 55 | 15 | 12.5% | $1,250 | $4,866 |
|---|
| 60 | 10 | 9.9% | $990 | $4,621 |
|---|
| 65 | 5 | 7.9% | $790 | $4,232 |
|---|
| 70 | 5 | 8.7% | $870 | $4,883 |
|---|
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Tax benefits
Income tax savings
You will earn an immediate income tax charitable deduction in the year of your gift, providing tax savings if you itemize. The amount of this deduction will depend on several factors. If you cannot use the entire deduction in one year, you may carry forward your unused deduction for up to five additional years.
Capital gains tax savings
If you give appreciated property, such as stock, to create a deferred gift annuity, you will pay tax on only some of your capital gain in the property. Even better, if you are the payment recipient of your deferred gift annuity, this capital gain will be spread out in installments over many years and won't start until the year you begin to receive payments. In this case, your capital gain income will replace some of the tax-free portion you would receive if you were to give cash.
Estate tax savings
By removing the gift assets from your estate, you may also reduce future estate taxes and probate costs. The amount of these savings will depend on the size of your estate and on estate tax law in force at the time your estate is settled.
Nicholas Cooper, 55, works full time and expects to work for another 10 years or so. He owns CDs and a money market account, both of which pay about 2% interest each year.
Nicholas would like to make a significant gift to the American Red Cross, but he wants to be sure he has adequate cash flow after he retires. He can dramatically increase his after-tax cash flow in his retirement by giving some of his CD or money market account funds to the American Red Cross in exchange for a deferred gift annuity.
The table below illustrates the results if Nicholas gives $50,000 to create a deferred gift annuity that starts making payments in 10 years. Nicholas is able to significantly increase his cash flow from the $50,000, and will receive an immediate income tax deduction that may provide tax savings!
| | Tax benefit | Income before tax | Income after tax (24% tax rate) |
|---|
| Nicholas keeps $50,000 in CD/Money Market | None | $1,000 | $760 |
|---|
| Nicholas funds a 9.0% gift annuity with payments deferred 10 years | $20,729* income tax deduction | $4,500 | $3,774 |
|---|
*Deduction amount may vary depending on the timing of the gift.
