FAQ

Catholic Charities has been fortunate to receive gift annuities from benefactors seeking to help us in our work. A gift annuity, however, is not the easiest contract to understand. For this reason, we print below the questions most commonly asked about annuities and their answers.

How does a Charitable Gift Annuity work?

If you are 50 or older, you can use cash ($5,000 or more) or appreciated securities (worth $5,000 or more) to establish a gift annuity. In return, you will receive income payments for life and a tax deduction. The amount of the gift and the age of the annuitant determine the income when the annuity is established. Once the income is determined, it remains fixed for the life of the annuitant(s).

How many annuitants can a Gift Annuity have?

You can have one or two annuitants, if both are 50 or older. Spouses who wish to ensure that both will enjoy income for life often choose a two-life annuity. With a two-life annuity, income payments extend over both lifetimes.

Consider James and Jane Smith. They want to establish a $10,000 gift annuity.

James Smith is 76. A single-life annuity in his name would pay him $830 annually for life based on an 8.3 percent rate. His tax deduction would be approximately $4,100.

Jane Smith is 65. A single-life annuity in her name would pay her $700 annually for life based on a 7 percent rate. Her tax deduction would be approximately $3,100.

A two-life annuity covering James and Jane Smith would pay $680 over both lifetimes based on a 6.8 percent rate. The tax deduction would be approximately $2,700.

Can I use stock to establish an annuity?

Yes. By using appreciated stock, you can lock in a high rate while avoiding a good portion of capital gains tax. The remaining capital gains tax owed will be spread out over your life expectancy. The key is to transfer the stock directly to Catholic Charities rather than selling it on your own. Even though the stock market has soared in the past 10 years, stock dividends are likely to pay less than 2 percent per year.

Tell me more about the tax benefits.

As indicated above, the annuitant receives an income tax deduction for the value of the gift in the year in which the annuity is established. In addition, a portion of the income is tax-free for a fixed number of years.

Can I defer my income payments until later?

If you are 50 or older, you can establish a gift annuity and defer income payments. You can make the gift now--while the income tax deduction would be helpful--and defer the income until retirement. Deferred income is based on three factors: your original contribution; accumulated interest from the time of the gift; and your age when payments begin. And because the income is deferred, the rate is always higher.

How does someone set up a Deferred Payment Gift Annuity?

Suppose Dr. Jones, age 55, a neurosurgeon in a high-income bracket, wants to help Catholic Charities now and defer the income until retirement. Dr. Jones will receive an immediate income tax deduction for the gift portion of his annuity. By deferring the income until age 65, Dr. Jones will receive an 11.6 percent return instead of 6.1 percent at age 55.

Can I establish a Gift Annuity in my Will?

You may establish a gift annuity for someone in your will if the beneficiary is 50 or older. The annuity becomes effective at your death and provides lifetime income payments for your loved one.

How does Catholic Charities benefit from my gift?

Upon the death of the annuitant, the gift is used to enhance the work of Catholic Charities.

How can I obtain more information?

Please call Jim Schaller at (314) 367-5500, extension 137, who will prepare a personal Summary of Benefits and mail it to you. The Summary will spell out your income payments and your tax benefits. You can decide if a charitable gift annuity is right for you. No one will call, but you can call us if you have any questions.