The concept of the charitable gift annuity in America dates back to 1843, when a merchant in Boston first donated a gift of money to the American Bible Society in exchange for a flow of income. Today, the concept includes valuable tax benefits for donors. But perhaps more valuable than the financial advantages is the satisfaction donors gain by helping to continue the mission and good works of Dakota Wesleyan University.

Gift Annuities Defined
A gift annuity is a simple, contractual agreement between a donor and Dakota Wesleyan University in which you transfer assets to us in exchange for our promise to pay one or two annuitants payments for life.

By donating through a gift annuity, you: (1) contract for a fixed payment for yourself or yourself and another individual, if you choose, and (2) make a gift to Dakota Wesleyan University. If you itemize deductions on your tax return, savings from the charitable deduction reduce the net cost of the gift.

For a period of years, based on a government table of life expectancies, a portion of each payment received is considered a nontaxable return of your investment in the gift. This further increases your after-tax dollars available for spending or investing.

An annuity funded with appreciated property results in these additional advantages: (1) the gain allocated to the gift portion completely avoids the capital gains tax, and (2) the portion of gain to be recognized can be spread over the expected term of the contract (provided that the donor is a primary annuitant and the annuity interest is assignable only to the charitable organization).

With a deferred payment gift annuity, the start of payments is delayed until a specific date, initially determined by the donor. Deferral of payments increases the initial income tax charitable deduction, tax savings and the annuity rate. However, it also reduces the nontaxable amounts to be received. This option is appealing to younger donors who wish to improve future income, such as at retirement.

Understanding Annuity Rates
Annuity rates are higher for older annuitants and lower for younger annuitants, based on life expectancy. As a result, gift annuity contracts are generally more appealing to older donors because the purchasing power of a fixed dollar return can shrink over any long period, even with modest inflation.

Rates are also adjusted according to the number of annuitants, with rates for two-life contracts often lower due to the extended life expectancy. The age of an annuitant is the age reached at the nearest birthday when the contract is made, and rates are the same for men and women.

A specific annuity rate is a matter of agreement between the donor and the issuing charitable organization. Below you'll see how one-life annuity rates increase with age. These rates are recommended by the American Council on Gift Annuities and are redetermined periodically. Check with Jackie Davis at the DWU Advancement Office for current rates.

One example to consider

Mr. Andrew, age 70, wishes to make a gift of $50,000 to Dakota Wesleyan. His estate is not large, and he has determined that he needs the income which is produced by the $50,000. Mr. Andrew agrees to irrevocably transfer the $50,000 in exchange for a charitable gift annuity. In return, we agree to pay him for his lifetime an annual annuity of 6.5% of the principal amount at the time of gift, or $3,250 per year, in semi-annual installments.

Depending on the type of asset contributed, a portion of Mr. Andrew’s payment may be taxable to him as a combination of ordinary income, long-term capital gain, and a tax-free return of principal. Each of his next 15.8 years payments of $3,250 will contain $1,849 of tax-free income and $1,401 of ordinary income. All income will be ordinary after 15.8 years, his projected life expectancy. As its name implies, a charitable gift annuity is part charitable gift and part purchase of an annuity contract. The gift portion of Mr. Andrew’s transfer is deductible for income tax purposes. Based on the information above, his charitable deduction would be $20,786.

The tax rules limit the amount of charitable deduction Mr. Andrew may claim each year. This limit will vary based on his income and the type of asset contributed. We would be pleased to discuss the application of these rules to your specific circumstances.

Learn More
Charitable gift annuities are an excellent method of achieving your philanthropic goals and gaining substantial tax benefits. As with most contract agreements, however, before establishing a charitable gift annuity, it is best to consult knowledgeable professionals.

At Dakota Wesleyan, we are available to answer any questions and provide projected results for your specific situation, in confidence and with no obligation.

There may be minimums associated with this type of gift.

For more information on planned giving opportunities, please contact:

Jackie Davis
Dakota Wesleyan University
1200 W. University Ave.
Mitchell, SD 57301-4396
e-mail:jadavis@dwu.edu
Phone (605)-995-2603