Most charitable gifts are easy to understand. You write a check to a charity and the gift amount is deductible from your taxable income. But there are other ways to give, some of which can provide greater benefits both to the charity and to you. While some advanced giving tools are limited to donors of substantial means, a charitable gift annuity (CGA) is within reach of many potential donors.

How a CGA works

Charitable gift annuities are known as "split interest" gifts, meaning money flows both to charity and to you.

  • You give: At least $10,000 in either cash or assets (preferably, appreciated assets) such as stocks, bonds, mutual funds, real estate, or even business ownership.
  • You receive: A guaranteed income stream until you die (or both you and your spouse die). Typically, that's when the charity of your choice receives what remains of the money you used to fund the annuity. In addition, there are tax benefits. (We'll use the word "income" throughout this article even though a portion of the money received from a CGA is actually a return of your principal.)

The guaranteed income

Most CGAs offer the same return because most providers adhere to the rates recommended by the American Council on Gift Annuities. That way charities don't have to compete with each other based on rates.

CGAs offer fixed rates. There's no such thing as a variable CGA, and you can't buy an optional inflation rider (as you can with a commercial annuity).

As the nearby table shows, CGA returns are lower than those offered by commercial annuities. The table compares the annual income offered by CGAs with the income available from a commercial (non-gift) annuity purchased through Vanguard.

While commercial annuities may provide significantly higher returns, CGAs offer some important tax benefits that can help offset the difference.

The tax benefits

Let's say you're 70 years old and paid cash in June 2014 for a $100,000 CGA based solely on your life. As the chart shows, this option will provide you with $5,100 per year.

In addition, you will receive two tax benefits. First is a tax deduction equal to your $100,000 contribution minus the present value of all the payments that are expected to be made to you based on your life expectancy. In this case, that deduction equals about $40,000, which is the present value of the amount estimated to go to charity upon your death. (Determined by the calculator at This tax deduction can be taken immediately or spread over five years.

Also, just as with a commercial annuity, a portion of the income you receive will be tax-free throughout your life expectancy, since it is considered a return of principal (if you live beyond your life expectancy, it will all be treated as ordinary income). You pay ordinary income tax on the rest. Sticking with our example, of the $5,100 in annual income you would receive, $3,713 would be tax-free and $1,387 subject to ordinary income tax.

If you fund the annuity with appreciated property instead of cash, you'll receive a third tax benefit. Instead of paying capital gains tax on the appreciation all at once, it will be spread out over your life expectancy. For example, let's say your $100,000 CGA was funded with stock you bought for $20,000. Instead of paying capital gains tax on $80,000, you will pay it on a portion of the income you receive each year. Of the $5,100 in annual income in this scenario, $743 would be tax-free, $2,970 subject to capital gains tax, and $1,387 subject to ordinary income tax.

Depending on your income, tax bracket, and how you fund a CGA, your net cash-flow may end up being comparable to what it would be with a commercial annuity, despite the CGA's lower rate. And of course, your designated charity will also benefit.

Two approaches to funding

How you fund a CGA will have a number of implications, including when your chosen charity receives a contribution.

  • Direct
    Some charities, such as The Cru Foundation, are large enough to offer CGAs directly to donors. The security of your income stream is backed by a reserve account governed by state law, as well as other assets owned by the charity, such as real estate. When you go direct, the charity usually receives your contribution upon your death. (Some charities use the reinsurance process described below, which gives them access to the contribution before the donor's death.) Key reasons to consider going direct include your familiarity with the charity and confidence in its financial strength.
  • Through an Intermediary Foundation
    Several Christian foundations offer CGAs, the largest of which is the National Christian Foundation, which has assets of $1.5 billion. (Others include WaterStone and Barnabas Foundation.) When you fund a CGA this way, the foundation reinsures the annuity. In other words, it searches the commercial marketplace for an annuity that pays the amount promised in your CGA contract. Because commercial annuity rates are higher than those offered by CGAs, the commercial annuity purchased by the foundation can be funded for less than your gift amount. The difference, minus an administrative fee, can go to the charity right away. Or you can put the funds available for contribution into a donor-advised fund to be distributed later.

Some reasons why you might prefer to work through a foundation:

  • Many charities don't offer CGAs directly
  • You want your gift to benefit multiple charities
  • Most charities won't accept real estate, whereas some foundations will—some will even accept a business interest
  • If you have any concern about the long-term solvency of the charity, a foundation's reinsurance process adds security

Of course, one factor that's outside of your control is how long you will live. Still, your longevity can impact how much of your CGA ultimately goes to charity. If you live longer than your life expectancy, a CGA funded through a foundation will still contribute the same amount to the charity. But if you funded the CGA directly, less will go to the charity (because your payments will continue for life, eating into the principal remaining). The opposite is also true: if you die earlier than your life expectancy, more will go to the charity if the CGA was obtained directly from them.

Whether you go direct or through a foundation, you receive the same upfront tax deduction.


The ideal candidate for a charitable gift annuity is an older person or couple with a charitable intent and a desire to turn a portion of a nest egg or an appreciated asset into a guaranteed income stream at a fixed rate (which is currently significantly higher than CDs and many other fixed-income instruments). If that describes you, keep in mind that once you fund a CGA, you can't get the money back. So be sure to only use funds you won't need or want to use for other purposes, such as future medical bills or an inheritance. And as with most complex tax matters, consulting a tax advisor about your specific situation is recommended.