From the Blog – Big Dumb Question #1: What Is a Charitable Gift Annuity, and Why Would a Donor Want One?

We’ve all been there: at some point during a presentation someone says, “This may be a dumb question, but…” and the presenter (hopefully in a gracious tone of voice) says, “There’s no such thing as a dumb question,” before providing the obvious answer. But sometimes, just to yourself, you have to admit you were wondering about the same thing.

That’s the idea behind this occasional series we’re calling “The Big Dumb Question” (or BDQ). Our aim is to provide easy to understand answers to basic gift planning questions – the kinds of questions you may be reluctant to ask. We’ve got a list of topics in mind (see below). Our very first BDQ is:

What Is a Charitable Gift Annuity, and Why Would a Donor Want One?

At the most basic level, a charitable gift annuity is simply a promise by a charity to pay a certain amount of money to someone each year for life. A charity makes this promise, in the form of a legal contract, in exchange for a charitable contribution now. The gift annuity is the second most common planned gift, after charitable bequests. Who came up with this idea? And why would a donor be interested? First, a bit of history.

Read the blog post . . .

CGA or CRT?!?!? Argh!

When you’ve got a hammer, everything looks like a nail. The planned giving hammer is the gift annuity. It’s easy for planned giving officers to explain and easy for donors to complete. Alas, as with gloves, one size does not fit all. Here are some reasons to do a gift annuity, and some reasons not to.

CGA Pros

• Annuity rates are uniform based on age and number of annuitants.
• Fixed payments are backed by the charity’s assets.
• Annuitants can’t outlive their income.
• It’s easy and inexpensive to complete an annuity.

CGA Cons

• Fixed payments don’t keep pace with inflation.
• The charity’s annuity reserves are subject to investment and mortality risk.
• The charity may not receive any gift; in fact, it could lose money on CGAs.
• They are heavily regulated in some states.
• They are difficult to fund with illiquid assets.

Hmm. How do you make sense of these pros and cons? When would it make more sense to do a CRT and not a CGA? Here are some situations when you want to recommend a CRT.

• The donor wants to donate real estate or other assets not easily converted to cash.
  • A charitable remainder unitrust with a flip provision is the vehicle of choice here.
• The donor wants to fund a CGA with millions of dollars.
  • If the charity makes poor investment choices and/or the annuitant outlives life expectancy, the charity must still make payments.
• The annuitant lives in a highly regulated state.
  • CRTs are not subject to state CGA regulations.
  • If a donor wants fixed payments, they could do a charitable remainder annuity trust.
• The donor wants to keep pace with inflation.
  • A charitable remainder unitrust could potentially grow if the investments perform well.

Yes, the CRT is more expensive to establish and manage than a CGA. Nonetheless, these situations point to the CRT as the better solution for the charity and the donor.

Gift Acknowledgement – Just Do It

Donors are responsible for substantiating their charitable contribution deductions and must obtain a “contemporaneous written acknowledgment” if claiming a deduction of $250 or more. However, charities are not required to provide an acknowledgement unless the payment is more than $75 and is partly a contribution and partly for goods or services.

Setting aside this ambiguity, it is good donor stewardship to provide a written acknowledgement for all contributions regardless of amount. The IRS does not provide required language or a suggested form for gift acknowledgements, but it does offer a primer.

The basic elements of a gift acknowledgment are:

1. Date – The acknowledgment should include the date the gift was completed. Determining the date of gift can be complex. Learn more here. 
2. Amount or Description – For checks or credit card payments, a specific dollar amount is appropriate. For non-cash gifts, provide a description of the item(s) contributed without assigning a dollar amount. The determination of the dollar value of the deduction for non-cash gifts is usually documented via a qualified independent appraisal, but valuation is a matter between the taxpayer and the IRS.
3. Quid Pro Quo – Include a statement either that no goods or services were made available as a result of the contribution or that lists the items provided along with an estimated fair market value. (There are exceptions for items of “insubstantial value.”)
4. Contemporaneous Acknowledgement – “Contemporaneous” means no later than the date the donor files the tax return for the year in which the gift was made. An annual summary, especially for sustaining or payroll deduction donors, qualifies as contemporaneous.

If you need help, contact our Client Services team at support@pgcalc.com or 888-474-2252.

We Were There – Live and in Person

We were delighted to have an enthusiastic group of attendees for our recent training sessions in New York City (PGM Anywhere Introductory and Advanced on February 14 and 15). Virtual meetings have become quite the norm since the onset of the COVID pandemic, but there’s just something special about a group of gift planning professionals gathering in the same room. We couldn’t have asked for better participation – there were lots of questions and lively discussions.

PG Calc will continue to offer a healthy rotation of in-person and virtual training sessions, but we wanted to make sure to let everyone know about the limited availability of the in-person opportunities. Whether it’s in combination with a personal vacation, adjunct to a professional conference, or just for a trip by itself, we encourage you to take advantage of our upcoming in-person sessions in 2023.

Our Gift Administration Team Has Been Busy

Are tax forms getting you down? They’ve been keeping our gift administration team busy! Our team ensured 12,167 Forms 1099-R were mailed on or before January 31, 2023, and, due to their diligence in keeping addresses up-to-date, the return mail rate remains less than 3%. K-1s are currently being sent to PIF and CRT beneficiaries well in advance of the April 15 deadline.

Wait – April 15 deadline? That doesn’t make sense! Check out our blog article that explains why donors always seem to think their K-1 Forms are late every year.

If gift administration is giving you a headache, let us do it for you! In 2022, our team managed over 20,000 payments to individuals across the country and overseas. Learn about PG Calc's Gift Administration Services.

Also from the Blog: A Deduction for Non-Itemizers? Not so fast.

Non-itemizers would be able to take advantage of an expanded charitable deduction under a bill introduced by Senator James Lankford (R-OK). “The Charitable Act” (S.566) would permit those who elect the Standard Deduction to claim an additional charitable deduction up to one-third of the Standard Deduction amount for two years only, 2023 and 2024. This year, one-third of the Standard Deduction for a married couple filing jointly is a little over $9,200. It is half that for a single filer. The Bill, which has ten bipartisan co-sponsors, has been referred to the Senate Finance Committee. There is no companion legislation in the House of Representatives.

The proposed Charitable Act has generated excitement in the charitable sector but, before popping the champagne corks, it is important to consider political realities.

Read the blog post . . .

Fairfield University Is Delighted with PG Calc’s Marketing Expertise, Customization, and Turnaround Time

“I’m new to Fairfield University, and was delighted that PG Calc was already in place. We worked together on our annual marketing strategy, and PG Calc has so far designed a CGA postcard, a reunions-focused insert, and a full-page magazine ad for us. We are delighted with the expertise and customization, not to mention the turnaround time!”

—Emma B. Penick, MBA, AEP®, CAP®
Senior Director of Planned Giving
Fairfield University

Learn more about the Fairfield University.

Learn more about PG Calc’s Marketing Services.