The Deferred-Payment Gift Annuity

This type of gift might appeal to you if you want to support , you're 40 to 60 years old, have a high income, need to benefit now from a current tax deduction, and are interested in augmenting potential retirement income.

The deferred-payment gift annuity involves the current transfer of cash or marketable securities in exchange for which agrees to pay the donor an annuity starting at a future date—usually at the donor's retirement. The gift can consist of a single transfer, a series of transfers, or periodic transfers to the plan in high-income years.

You realize an immediate charitable deduction for the gift portion of each transfer to the deferred gift-annuity plan. A portion of each annuity payment, when the payments begin, will be a tax-free return of principal over the life expectancy of the annuitant. When appreciated, long-term, capital-gain securities are transferred, any reportable capital gain is spread out over the donor-annuitant's life expectancy.

For example, Mr. and Mrs. Cullen, both 55, wish to supplement their retirement income with deferred-payment gift annuities. After consulting with their own financial advisors and a member of our staff, they decide to contribute $10,000 each year for the next 10 years to gift annuity program.

The tax and financial benefits of this arrangement to the Cullens are as follows:

• Under the deferred gift arrangement, the Cullens are entitled to a charitable deduction for each annual contribution. While the deductions vary from year to year, the total charitable deduction over the 10-year period, based on current IRS mortality and interest assumptions, will be approximately $19,225 (19.2% of the amount they contribute over the 10-year period).
  
  
• At the age of 65, when retirement income becomes important, the Cullens will receive $6,490 each year from their well-planned annuities. In addition, a portion of those payments will be excludable from their taxable income for their life expectancy.
  
  
• Unlike a qualified retirement plan, there are no upper or lower limits to their contributions or other restrictive requirements on the design of the plan.

Please note: Because the federal estate tax has been repealed for 2010, there is no current estate tax in 2010 for the gifts described on this page. However, the consensus opinion among professionals is that Congress will enact an estate-tax law that may be retroactive to January 1, 2010. It is very important that you seek the advice of your estate-planning attorney to determine what changes, if any, need to be made to your existing estate plans, and then again if Congress reinstates the estate tax sometime later this year.
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