Stelter’s Senior Gift Planning Consultant, Lynn M. Gaumer, J.D., suggests a creative way to add to your blended giving discussions.
Giving now and later. That is the essence of blended giving. What typically comes to mind is an outright gift of cash or appreciated property combined with a gift in a will or beneficiary designation. But let’s think outside the box for a moment. What happens if we give a little flair to the traditional charitable giving annuity (CGA)? And just for fun, we give it a new name.
Enter the “Impact CGA.” I didn’t think of it (although I wish I had). That accolade goes to Greg Johnson, the Director of Gift Planning at the University of Pennsylvania. He had the foresight to create a blended gift opportunity that combines a traditional charitable gift annuity with an outright gift of the annuity payments to the charity for a term of years (typically 3-5 years).
It’s a win-win. During the agreed upon term, the donor can satisfy a pledge or contribute to a campaign while qualifying for a larger income tax deduction when they itemize. After this initial term of years, the annuitant receives lifetime income. The nonprofit not only benefits by receiving the outright gift during the term but also the residuum after the annuitant’s lifetime.
How it works
The process is relatively simple. The donor contributes cash or appreciated property to the nonprofit to create a gift annuity. The donor chooses how many years they would like to make an immediate impact to your organization.
They take a larger income tax deduction at the time of the gift for several years’ worth of annuity payments. These payments are used by the nonprofit to make an immediate impact. This technique may benefit donors whose non-charitable itemized deductions currently fall below the standard deduction amount.
Let’s Look at the Numbers
In this example, a donor creates a single life immediate gift annuity funded with $50,000 cash. She elects a larger upfront tax deduction and uses the initial payments to contribute to a campaign for five years.
|Immediate CGA||Impact CGA*|
|Annuitant age at time of gift||75||75 but defers 5 years’ worth of payments until age 80|
|Annual payment||$2,700||$2,700 per year to nonprofit. After 5 years, payment goes to annuitant|
|Additional gift to charity||0||$13,500|
|Income tax deduction** in year of gift||$23,316||$34,962|
**Assumes a 1.6% CMFR
The Impact CGA was recently highlighted during the National Association of Charitable Gift Planner’s virtual conference. Presenter Lynn Malzone Ierardi, J.D., Director of Gift Planning at The University of Pennsylvania, has used the Impact Annuity with great success.
“The Impact Annuity is attractive to donors for all the reasons gift annuities are attractive—with some additional advantages,” Lynn says. “By way of example, I recently worked with a highly engaged Penn volunteer who quickly understood during our discussions that a regular gift annuity wouldn’t support current scholarship students. The Impact Annuity provided a better vehicle to achieve ALL her objectives. She was able to make a current gift, make a planned gift, and serve as an example to other Board members and volunteers. She’s a happy donor—and we are grateful for her support!”
An Additional Take
If the donor does not want to commit to 3 to 5 years’ worth of payments upfront, one option that has always been available is to give on a year-to-year basis. The donor can either forego receiving annuity payments and has the charity retain them, or issues a check back to the charity to make an immediate impact. They qualify for an additional tax deduction for every payment directed back to the nonprofit. The annuitant will continue to be taxed on all payments as though they had received them.
Stelter Is Here to Help
Access our sample copy of donor letter that directs your organization to retain yearly annuity payments:
With a traditional CGA, your donors may not realize that they are not making an impact now to your organization. Introduce them to the concept of an Impact Gift Annuity. The initial payments can be used to satisfy a pledge, contribute to a campaign or make an immediate impact to a specific program. It is a nice way to introduce the blended giving conversation.