Gift Annuities
The charitable gift annuity is a contract in which a donor irrevocably transfers money, property, or both, to the Texas Woman’s University Foundation in return for its promise to pay that donor, or another person, or both, fixed payments for life.
The transfer is part charitable gift and part purchase of an annuity. Part of the payment is interest earned, and it is taxable. Part of each payment is return on the principal, and it is tax free. Gift annuity payments are backed by the TWU Foundation’s entire assets.
Appreciated assets can be given to a charitable organization in exchange for a gift annuity. The gift annuity provides the donor with a tax deduction in the year that the annuity is established. It is based on the amount of the gift, the donor’s age and the income she/he will receive. The capital gains tax is avoided in part on appreciated property. Part of the capital gain is allocated to the annuity portion, and it is taxed each year over the donor’s projected life expectancy. Because the tax is spread over the donor’s life and because the donor is receiving, in part, tax-free payments, the transfer of appreciated property in exchange for a gift annuity can generate favorable results.
Some frequently asked questions about gift annuities are answered below.
Q: How often will I receive
annuity payments?
A: Annually, semi-annually
or quarterly
Q: Can I withdraw the funds
from the gift annuity at a
later date?
A: No. The agreement or
contract is irrevocable.
Q: Is a gift annuity a
suitable plan for a surviving
spouse?
A: Yes, gift annuities are
designed to make payments for
life.
Q: Can a single-life gift
annuity be changed later to a
gift annuity for two lives?
A: No, the type is fixed
when the gift is made.
Q: What is the difference
between a two-life gift annuity
rate and a one-life gift
annuity rate?
A: The rate is slightly lower
when two people receive
payments for life because more
than one person will benefit.
Q: Can the person who is
named to receive payments after
the first recipient dies be
changed?
A: No. However, another gift
annuity can be arranged for a
different individual.
Q: What happens if the
portion of a donor’s gift
annuity that is considered as a
gift then exceeds the maximum
amount that she or he is
allowed to deduct on an income
tax return during the year in
which that person makes the
gift?
A: The donor can carry over the
excess into the next five tax
years.