The American Council on Gift Annuities has announced the increased suggested maximum rates for gift annuities that are established after June 30 of this year. The new rates were released by the ACGA on May 15, about a month after the organization’s board approved an increase. Below is a comparison of the old and new rates for selected ages.
For gift annuities that make payments for the lifetime of one individual
|Age||Old Rate||New Rate|
For gift annuities that make payments to two individuals jointly and then to the survivor for life
|Age||Old Rate||New Rate|
A person aged 75 who contributes $50,000 for a gift annuity before July 1 would receive $2,900 per year for life. But if the contribution is made after June 30, the payments will be $3,100 per year for life.
A couple, both 75, who contribute $50,000 for a gift annuity before July 1 with payments to them jointly and then to the survivor would receive $2,500 per year for life. But if the contribution is made after June 30, the payments will be $2,750 per year for life.
Why Are Rates Increasing?
The existing gift annuity rates (those offered through June 30 of this year) have been in effect since 2012. They are increasing now largely in response to rising interest rates, though the gift annuity rates also take into consideration returns on other investments and on mortality data.
How Are Gift Annuity Rates Determined?
The American Council on Gift Annuities reviews and suggests gift annuity rates—and most charitable organizations follow the rates. Thus in most instances charities pay the same gift annuity rates. The rates are designed with two objectives: to provide attractive payments to individuals who want to make a gift but need to receive income from their contribution and to leave a significant amount of the contribution for charitable purposes after fulfilling the payment obligation.
How Will the New Rates Affect Existing Annuities?
There is no effect on existing annuities. The gift annuity rate in effect when an annuity is established remains unchanged for the duration of the annuity. For example, if a donor has been receiving $2,000 per year from a gift annuity, that amount will not change. The new rates affect only annuities established after June 30.
Deferred Gift Annuities Will Become More Attractive Too
When donors establish immediate-payment gift annuities, they normally start receiving payments at the end of the current calendar period (typically the quarter, though payment could be made monthly, semi-annually, or annually as well as quarterly). When donors establish deferred-payment gift annuities, they make the contribution now but start receiving payments at some point in the future—usually at retirement. Between the date of the gift and the date payments begin, the contribution compounds at a certain guaranteed rate. That compounding rate will increase by 0.5% for deferred-payment gift annuities established after June 30. This means that a deferred-payment gift annuity will become an even more appealing supplemental retirement plan.
Other Benefits of a Gift Annuity
Besides larger fixed payments for life, gift annuities will continue to provide tax benefits—an income-tax charitable deduction and payments that are favorably taxed. If a donor contributes cash, a significant portion of the payments will be tax-free for the duration of the donor’s life expectancy. If the donor contributes appreciated property, such as securities, a portion of the capital gain will not be taxed and the gain that is taxable can be reported ratably over the donor’s life expectancy.