Charitable gift annuities offer an immediate income tax deduction and regular income payments for life, while providing long-term financial support to the Vermont Land Trust. They are easy to establish, require a minimum gift of only $5,000, and allow donors to increase their income.
Charitable gift annuities can be funded with virtually any type of property, including land. Although the annuity payments may be subject to capital gains taxes, the tax is greatly reduced and can be spread out over the period of the donor’s life expectancy.
What is a charitable gift annuity?
A charitable gift annuity is both a charitable gift and a purchase of an annuity contract. When you establish the CGA with a gift of cash, securities, or property, valued at $5,000 or more, we will agree to pay you—and up to one other beneficiary—a fixed amount for life (this fixed amount is also referred to as an annuity). After your death, the remainder of the original gift amount, plus any interest it has accrued, will be available to the Vermont Land Trust for use in our conservation work.
For donors under the age of 65, we request that the annuity payments be deferred until after they are at least 65. This avoids an excessive period of gift administration, but also has the added benefit of increasing both the size of the charitable deduction and the annuity payments.
Should I consider a charitable gift annuity?
A charitable gift annuity is a good choice if you are 65 years or older, can make a principal gift of $5,000 or more, would like to have reliable fixed income for the rest of your life, and would ultimately like to leave a significant gift to the Vermont Land Trust.
If the above is true, but you are younger than 65 years old and are willing to defer your first annuity payment until your retirement, a deferred CGA is a good option for you.
What are the benefits of a charitable gift annuity with the Vermont Land Trust?
- There are many tax benefits to setting up a charitable gift annuity, including limiting capital gains taxes, taking a charitable income tax deduction, and easing estate taxes by removing the assets from your estate before your death.
- A charitable gift annuity with the Vermont Land Trust will pay a fixed annuity for life. You will receive a quarterly check that you can always count on, regardless of what the market is doing.
- At the end of your life, the remainder of your initial gift becomes available to the Vermont Land Trust, making a sizeable, extremely generous contribution to our operating fund, which will in turn allow us to conserve more of Vermont’s farms and forests.
Are there disadvantages?
- When a charitable gift annuity is established, the principal is transferred to the Vermont Land Trust. This means that you (and your heirs) would no longer have access to the principal.
- A portion of the annuity payments will be subject to income taxes.
How are annuity payments determined?
Three factors determine annuity payments:
- The age and number of annuitants. You may identify one other beneficiary, other than yourself. We recommend deferring annuity payments until you are post-retirement age.
- Your choice of annuity rate. We use the American Council on Gift Annuities tables to establish the maximum annuity rate. The older the annuitant, the higher the maximum annuity payment. In most cases, the annual annuity payment will be 5-10 percent of the donated property value. You may choose a lower annuity payment rate, which usually results in a higher charitable income tax deduction at the time the CGA is established.
- The federal “discount rate” that is in effect at the time of your gift. The discount rate is set by the Federal Reserve Board.
What size tax deduction can I take?
Your tax deduction will be affected by of the age of the annuitant(s), the annuity rate selected, and the federal discount rate. If you cannot use the entire deduction in the year of the gift, you may carry the deduction forward for up to five years. Because of the complexity, if you are considering a CGA for tax purposes, you should consult your financial advisor.
If you decide that you no longer wish to receive the annual income, you can terminate your annuity payments; this would create additional income tax benefits and accelerate the availability of assets to the Vermont Land Trust for our programs.
How are annuity payments taxed?
If the charitable gift annuity is established using an appreciated asset (e.g. stock or land), the annuity payments will be broken into three parts for income tax purposes:
- Part will be tax-free, representing a return of your purchase price or “tax basis.”
- Part will be taxed as capital gains income.
- Part will be taxed as ordinary income.
If the annuitants live beyond their life expectancy (based on the actuarial tables provided by the American Council on Gift Annuities) subsequent annuity payments will be treated as ordinary income.
Each January, we send a 1099-R describing how payments received in the previous year should be declared for income tax purposes.
Who oversees the annuity investments and payments?
Charitable gift annuities are administered by our Director of Finance. Investments of gift proceeds are handled by an outside investment advisor in accordance with policies established by our Board of Trustees.
We mail annuity payments quarterly, on the last day of each quarter.
How are annuity payments guaranteed?
Charitable gift annuities are not regulated by Vermont's insurance or securities laws. However, to protect annuitants, we place the CGA proceeds in a gift annuity reserve, from which income and principal is used to make the annuity payments. In addition, CGAs are also backed by VLT's unrestricted assets.
CGAs are governed by the laws of the state of the donor's principal residence. In some cases, a state's law may make the use of a CGA impractical.
I’m interested in setting up a charitable gift annuity, how can I get started?
If you work with a financial advisor or attorney, first seek their counsel.
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, VLT’s Special Assistant, is also available to discuss your options and how a planned gift might affect your long-range financial plans.
To learn more about your charitable gift annuities options, we will need to know your birthday (also the birthday of your beneficiary if you so choose), the estimated fair market value of the asset you intend to use to fund the annuity, and your tax basis in that asset (or the cost).
Information contained in this website should not be considered legal, accounting, or other professional advice. Please consult with your financial and legal advisor if you wish to make a planned gift to the Vermont Land Trust
