Refresher Course: Charitable Gift Annuities
by SCF Team | May 1, 2025 | Siouxland Community Foundation Blog, Advisor Resources |
Lately, several advisors have shared that more clients are asking about charitable gift annuities. With recent legislative updates and favorable financial conditions, it is no surprise that charitable gift annuities are back in the spotlight. If you have not explored them recently, now is a great time for a refresher.
Why the Renewed Interest?
A $54,000 Opportunity
The “Legacy IRA” provisions, enacted a few years ago, opened the door for a one-time Qualified Charitable Distribution to fund a split-interest gift—such as a charitable gift annuity or a charitable remainder trust. For 2025, this amount has been adjusted for inflation and capped at $54,000.
Because the law requires that the charitable gift annuity or charitable remainder trust be created solely to receive this Qualified Charitable Distribution, many clients prefer the simplicity of a charitable gift annuity over the more complex process of establishing a charitable remainder trust for a relatively modest amount.
Payout Rates Remain High
Another reason for the resurgence in charitable gift annuities is the favorable payout environment. Suggested rates from the American Council on Gift Annuities increased in January 2024 and remain attractive for 2025. With uncertainty ahead for interest rates in 2026, clients may want to lock in a charitable gift annuity this year while the rates are still strong.
Charitable Gift Annuities: The Basics
If a client is curious about how a charitable gift annuity works, here’s a summary you can share:
- A charitable gift annuity involves a client transferring assets to a charitable organization in exchange for a lifetime income stream and a partial tax deduction.
- At the end of the client’s life, the remaining funds go to the charity.
- The charitable portion of the gift is calculated using Internal Revenue Service rules, based on the excess of the contribution over the present value of the annuity.
- Clients can fund the annuity with cash or marketable securities.
- Payouts are determined by actuarial calculations and distributed in equal payments. A portion of each payment is considered tax-free as a return of principal.
- Typically, a significant residual benefit flows to the charity after the client’s lifetime.
- The annuity payments are backed not just by the donated assets, but by the charity’s overall reserves, which is why most states regulate charitable gift annuities to ensure that charities remain financially sound and able to meet these obligations.
We’re Here to Help
As your clients navigate the charitable giving landscape, we encourage you to reach out to the community foundation team whenever charitable gift annuities—or any other giving strategies—come up in conversation. Keeping current on the regulations, calculations, and best practices for charitable giving is just one of the many ways we support you in serving your clients.
We’re honored to be your first call on all things philanthropy.
