Publication 1457 is a book of federal tables used to compute charitable remainder annuity trust and gift annuity deductions and pooled income fund deductions. The edition that contains tables based on Table2000CM is called Actuarial Values, Book 3A. It is available on the Web. The edition that contains tables based on Table 90CM is called Actuarial Values, Book Aleph. The edition that contains tables based on Table 80CNSMT is called Actuarial Values, Book Alpha.
Charitable Gift Annuity
A deferred gift annuity is a simple contract between the donor and the charity. In exchange for an irrevocable gift of cash, securities, or other assets, the charity agrees to pay one or two annuitants a fixed sum each year for life, with payments starting at least one year after the gift. The annuitants typically are the donor or the donor and the donor's spouse. The older the annuitants are at the time of gift and the longer payments are deferred, the greater the fixed income the charity can agree to pay. The donor receives an income tax deduction for the difference between the amount transferred and the value of the annuity, subject to IRS 30%/50% limitations. The donor's deduction must be at least 10% of the funding amount.
Sometimes called a “Tuition Assistance Plan,” a commuted payment gift annuity is a simple contract between the donor and the charity. The commuted payment gift annuity is really a modified deferred gift annuity. In exchange for an irrevocable gift of cash, securities, or other assets, the charity agrees to pay one or two annuitants a fixed sum each year for life, with payments starting at least one year after the gift. The contract includes language, however, that gives the annuitant the option to commute the lifetime of payments to a fixed number of payments of equivalent value. The annuitant may commute the payments immediately or at any time prior to the date of first payment.
A build-up gift is any gift that is made in installments over a period of years. For example, a donor might fund a deferred gift annuity each year for five years or make a series of additions to a charitable remainder unitrust.
The states that require charities to report annually on the sufficiency of their gift annuity reserves have maximum interest rates that they allow to be used in the reserve calculation. The maximum interest rate allowed by a particular state depends on the state, the year of gift, and in some cases the number of years a gift's payments were deferred.
Annuity reserves are the assets a charity needs in order to finance its gift annuity payment obligations. The amount of reserves needed to finance each gift annuity depends on the size of the annuity payments, the ages of the annuitants, and the mortality table and interest rate used.
Many charities compute annuity reserves for their own internal purposes to make sure that they have ample funds on hand to make annuity payments now and in the future.
An annuitant is a person who is the income beneficiary of a gift annuity, deferred gift annuity, flexible gift annuity, or commuted payment gift annuity.
The American Council on Gift Annuities (ACGA) is a national organization of charities that promotes charitable gift annuities. Among its many functions, it is a clearinghouse for information on gift annuities, sponsors the Conference on Gift Annuities every three years, and issues tables of suggested maximum annuity rates that member charities should offer to their donors.
A person's actuarial age for computing a charitable deduction and choosing an ACGA suggested gift annuity rate is his or her age on the birthday that is closest to the date of gift.
Conventional wisdom says that it is always best to use the highest available discount rate when calculating a life income gift deduction since this maximizes the donor's deduction. Using the highest discount rate also minimizes the tax-free portion of a gift annuity's payments.