Gifting an Annuity to Charity
An annuity is a contract between an investor and an insurance company (or other designated fiduciary) that allows the investor to pay a premium in order to achieve tax-deferred earnings or to gain a consistent stream of income over a lifetime. The tax-deferred option is a deferred annuity. The income option is an immediate annuity. You can give an annuity to a charity in three ways.
Instructions
1. Designate the charity as the beneficiary on the annuity. You get no immediate tax benefits with this option, but it is the simplest method of gifting the cash value of an annuity to a charity upon the annuitant's death. The charity will not pay any taxes on the paid benefits upon the death of the annuitant. (The annuitant is the person whose life the annuity is based on.) To designate a charity as the beneficiary, contact the annuity company and request a beneficiary designation form, then complete the form and submit it.
2. Designate the charity as the new owner. The annuitant doesn't have to be the owner of the annuity. If the charity is named as the new owner, the charity becomes responsible for the taxes and receives the benefits upon the death of the annuitant.
3. Arrange for a charitable gift annuity. In this type of gift, you can use an existing annuity or start with a lump-sum contribution. The deferred annuity or lump sum is used to fund an immediate annuity that pays the donor a lifetime income while the charity gets the lump sum immediately. The donor gets a deduction for the lump-sum donation and is taxed only on the income received from the annuity over the years. Charities must be established to do these types of transactions, as they become the fiduciary for the income of the donor. Check with the American Council of Gift Annuities for viable charities.
