Description of Charitable Gift Annuity

Through a charitable gift annuity, you can make a gift to the Northwest Compassion Foundation (NCF) and guarantee yourself, or a beneficiary you name, an income for life. The annuity is a contract between you and the Northwest Compassion Foundation that guarantees a fixed payment on your gift, for life. You can fund your annuity with cash or marketable securities.

Advantages of a Charitable Gift Annuity

• You receive a guaranteed periodic income that is not affected by the fluctuation of the marketplace.

• You receive an income tax deduction in the year that you establish the annuity for the gift portion of the contract.

• You receive a portion of your annuity income free of federal income taxes.

• You generally are able to prorate any capital gains taxes over the expected life of the annuity payments.

• You are free of concern about money management.

Features of a Charitable Gift Annuity

• The expected rate of return depends upon whether one or two people will receive income from the gift and upon the age of the recipient(s). For example, the guaranteed fixed annuity payment is higher for a 75-year-old donor than a 60-year-old donor. The annuity rate is based on those recommended by the American Council on Gift Annuities.

• There are three types of annuity agreements.

Single Life: One person receives payments during his or her lifetime.

Two Life (Joint and Survivor): Two people receive payments. When one persons dies, the survivor receives the full amount.

Two Life (Successive): Initial donor receives payments until death when a second named annuitant, if surviving, begins to receive payments until his or her death.

• You have the satisfaction of knowing that a portion of your annuity can benefit the hungry, the homeless, the imprisoned, those with special needs, the widowed, orphans and the unborn at the time of your death.

• You cannot add to a charitable gift annuity, but you can establish an additional annuity agreement at any time.

• The annuity is an irrevocable agreement.

• There is a minimum amount required to establish a charitable gift annuity.

• There is a minimum age for an annuitant.

Deferred Payment Gift Annuity

• Payments from a gift annuity can be deferred until a later date, which must be more than one year after the date the gift was made.

• The charitable deduction is still taken the year the gift is funded.

• A more favorable payout rate may be possible depending on your age and deferred payout date.

• Additions can be made to a deferred gift annuity up until the time specified for payments to begin.

• Once the payments begin, it is treated as a regular gift annuity with similar tax benefits.

Federal Tax Consequences

Income Tax Deduction

If you itemize, you are entitled to a charitable deduction in the year you make your gift. The gift portion is generally the difference between the amount of money (or fair market value of long-term securities) transferred to NCF and the value of the annuity. The value of the annuity is calculated using actuarial tables issued by the Treasury.

Tax Treatment of Payments

A portion of each annuity payment is tax free—also determined by Treasury tables. The entire payment becomes taxable if the annuitant outlives his or her life expectancy. If the annuitant dies before then, any unrecovered investment in the annuity is deductible as an itemized deduction on the annuitant’s final income tax return (Form 1040).

Capital Gain Implications

Capital gain is incurred when a gift annuity is funded with appreciated property, but the gain is not all reportable in the year the gift annuity is made, as it would be if the donor sold the property. It is reported ratably over the donor’s life expectancy when the annuity is nonassignable and the donor is an annuitant. However, if the donor provides an annuity only for another, the gain is reportable in the year of transfer, not ratably. Even so, frequently no out-of-pocket tax need be paid on the gain because it is offset by the charitable contribution deduction.

Estate Tax Benefits

If an estate would otherwise be subject to federal estate tax, substantial estate tax savings can be achieved. An annuity for the donor’s life is completely excludable from the donor’s estate. In a two-life annuity, if the donor is the first annuitant, the donor’s estate is not subject to estate tax on the annuity if the second annuitant does not survive. If the second annuitant is a surviving U.S. citizen spouse, no amount is subject to estate tax. For a two-life annuity in which the second annuitant is not a spouse, only the value of the survivor’s annuity—what it would cost to purchase an annuity paying the survivor the same annual amount that was paid to the donor—is includable in the donor’s estate. This value is based on the survivor’s age at the donor’s death. If no gift annuity were purchased, the entire amount used to purchase the annuity would be subject to estate tax.

The Survivor Annuitant’s Income Tax Benefits

The survivor receives the same amount tax free each year as the donor did. In addition, the survivor gets an itemized income tax deduction spread over his or her life expectancy for any federal estate tax paid by the donor’s estate on the value of the survivor’s annuity.

Individual Information

The consequences of a charitable gift depend on each donor’s particular circumstances. This general discussion of charitable gift annuities does not address every issue, nor does it take into consideration the type of assets you are contributing in exchange for your charitable gift annuity, the particular terms of your gift annuity, your individual tax situation or your estate and gift planning objectives. Additionally, there are other factors, such as state and local taxes, that may be relevant to your gift. You should consult your tax and estate planning advisors regarding those considerations as well as information about other ways to structure charitable gifts.