Written by: Kathleen Schroeder
As financial planners, our goal is to help clients fulfill their charitable intentions while identifying strategies to maximize their wealth, legacy, and philanthropic impact. In our experience, valuable tax-saving opportunities are often overlooked, leaving potential benefits on the table. While many donors are aware of the benefits of donating highly appreciated stock—either directly to charitable organizations or through a Donor Advised Fund—a charitable gift annuity (CGA) is a lesser-known option that can offer a win-win for both donors and nonprofits.
A CGA allows donors to make charitable gifts, while receiving fixed lifetime payments. This opportunity offers more simplicity and lower costs, though less flexibility, than a Charitable Remainder Trust, while maintaining the opportunity to donate appreciated stock in return for a guaranteed income stream.
When to Consider a CGA?
- Avoid Capital Gains Tax
Donating appreciated securities to a CGA allows donors to avoid the capital gains tax that would be triggered by a sale. This means more of the asset goes toward the charitable gift. Win-Win! - Generate Fixed Lifetime Income
In return for their gift, the donor receives guaranteed, potentially partially tax-free payments for life. - Receive a Charitable Deduction
The donor may receive an immediate charitable income tax deduction for a portion of the gift, based on the present value of the charitable remainder interest. A CGA can serve as a way to ‘bunch’ donations, allowing donors to make a single, substantial gift in one year that exceeds the standard deduction threshold - Bonus! Place a CGA with IRA funds
Thanks to provisions under the SECURE 2.0 Act, the use of Qualified Charitable Distributions (QCDs) has been expanded to include funding CGAs directly from IRA assets (subject to certain limitations).
CGAs are certainly not a one-size fits all solution, and they should be carefully considered, as the gift is irrevocable and there are risks involved if the receiving charity dissolves. Additionally, as with other annuity income streams, the amount is fixed and does not adjust with inflation, and there may be other investment vehicles that offer higher returns.
But, for those investors with charitable intent, it is a worthwhile vehicle to explore with your trusted financial professional. Please feel free to give Babb Financial Group in Flagstaff, Arizona a call if you would like to see how these solutions may be a fit for you. Happy giving!
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