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, Dr. Evelyn Garwood, 45, decides to make annual cash contributions of $10,000 to in exchange for deferred-payment gift annuities. Payments are to begin upon her retirement in 20 years and continue for the rest of her life.

The tax and financial benefits of this arrangement to Dr. Garwood are as follows:

• She will receive an annual annuity payment of $20,580, to begin when she reaches the age of 65, and to continue for the duration of her life.
• She will be allowed charitable deductions totaling $86,062 over 20 years—which represents more than 43 percent of her total contributions of $200,000. (The annual deduction will vary from $4,630 for the first year to $3,763 for the last year.)
• Unlike a qualified retirement plan, there are no upper or lower limits to her 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Please note: Because the federal estate tax has been repealed for 2010, there is no current estate tax in 2010 for the gifts described on this page.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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