And The Winner is: The Award For Best Planned Gift of 2023 Goes To…

Stelter’s Senior Gift Planning Consultant, Lynn M. Gaumer, J.D., highlights why the charitable gift annuity (CGA) is a great option for donors this year.

On March 12, movie lovers around the world will tune in to see which filmmakers get recognized for their excellence by winning Oscars^® from the Academy of Motion Picture Arts and Sciences. (And after the 2022 ceremony, viewers may tune in to see if there is drama on the awards stage, too.)

Alas, there’s no worldwide broadcast to recognize excellence in planned giving. So let’s take the opportunity here to recognize the best planned gift of 2023.

The Nominees

• Beneficiary designations
• Charitable gift annuities
• Donor advised funds
• Gifts in a will
• Gifts of appreciated assets
• Qualified charitable distributions

All nominees receive honorable mentions for their varying benefits and flexibility.

And the Award Goes to…

The CGA!

So what makes the CGA stand out among its peers? It just hit a trifecta. The American Council on Gift Annuities increased gift annuity rates not once but twice within the last seven months, making rates the highest they have been in over a decade. And recently, Congress gave donors a year-end gift. An IRA owner 70½ and older can now make a one-time election of up to $50,000 to fund a CGA with a QCD. 

I know this new option is receiving lots of press. But is this new gift funding option best for your donor? Or is a CGA funded with traditional assets such as cash or appreciated securities a better option? Fundraisers need to be informed on the important distinctions between a CGA funded with traditional assets and one funded with a QCD so they can help guide and educate their donors to make the best decision for their unique situation.

Traditional CGA vs. CGA Funded With a QCD

Let’s take a look at a side-by-side comparison of some key distinctions between the two options:

	CGA Funded With Traditional Assets such as Cash or Appreciated Property	CGA Funded With a QCD
Donor Age	Typically, 60 and over. Each organization should have a gift acceptance policy that sets forth the minimum age requirement.	70½
Maximum Gift Amount	Typically, no maximum amount unless an organization’s gift acceptance policy states otherwise.	$50,000 (this will be indexed annually for inflation beginning in 2024)
Payment Start Date Options	Immediate, deferred or flexible deferred gift annuities.	Payments must begin no more than one year from the date of the gift.
Assets Available to Fund CGA	Cash, stocks or other appreciated property	IRA assets
Taxation of Gift Annuity Payments	Cash: Part tax-free income, part ordinary income. Appreciated Property: Part tax-free income, part ordinary income, part capital gain income. Note: All payments will become ordinary income after the annuitant reaches their life expectancy.	All payments are taxed as ordinary income.
Annuitants	More flexibility here as annuitants can be the donor, spouse or other individuals such as a sibling, parent or loved one.	Limited to donor and/or donor’s spouse.
Charitable Deduction	The donor receives a partial income tax deduction for their gift.	The donor is not entitled to a charitable deduction.
CGA Payments Assignable	Yes	No
Payout Rate	No minimum.	Must be at least 5%. This is not currently an issue for single-life CGAs but may be in the future as rates change over time. Current rates for some two-life CGAs fall below this threshold.

Top 5 Questions From the Nonprofit Community

Now that you have the basic comparisons, let’s take a deeper dive into the new law. Here are the top 5 questions I have been answering from the nonprofit community.

Q. Can an individual make a $100,000 QCD gift and a $50,000 QCD/CGA gift in the same year?

A. Many experts agree that an IRA owner 70½ and older cannot make a QCD gift of $100,000 and make an additional QCD gift using a one-time election of $50,000 in the same year for a total annual distribution of $150,000. 

Q. Can an IRA owner 70½ and older create more than one CGA as long as the aggregate amount does not exceed $50,000?

A. Yes. It is not limited to a single gift but must be completed in the same tax year.

Q. Can a donor combine cash and a QCD to fund a single gift annuity?

A. No. A donor cannot combine a QCD with other assets to fund a gift annuity.

Q. Can spouses each contribute up to $50,000 from their respective IRAs to fund one joint-life CGA?

A. Yes. Spouses can each contribute up to $50,000 from their respective IRAs to create one joint-life CGA.

Q. What about a charitable remainder trust (CRT)? I heard you can now fund a CRT as well.

A. You can. However, funding a new CRT for $50,000 (or even both spouses contributing $50,000 each) is impractical due to the costs of set-up and ongoing administration. And existing trusts cannot receive additional contributions from IRAs. Only new CRTs qualify. I recommend that your marketing material and discussions focus on the CGA.

And that’s a wrap. Congratulations to the CGA on being our winner in 2023!  And now, onto the afterparties (aka Next Steps).

Next Steps

We have been busy updating and creating new content that highlights this exciting new opportunity. As a fundraiser, it is up to you to understand the key distinctions between funding a CGA with traditional assets and a QCD so you can help guide the donor on which option is best for them.

Then review your list of donors and identify those who may be interested in a traditional CGA or using their IRA to establish a CGA with your organization. Reach out to them to let them know that they can leave a legacy and boost their retirement income.

If your organization does not offer CGAs, now is the time to look into either creating a CGA program or working with a third party to offer them. See my blog “Minimize Risk to Your Organization” for more information on how your organization can say “yes” to gifts like CGAs.