A flexible gift annuity is a simple contract between the donor and the charity. In exchange for a 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 may elect to start receiving payments on any one of a range of dates, such as June 30th of any year from 2005 - 2025. These dates and their corresponding payment amounts must be listed in the agreement. The flexibility to choose when payments start is appealing to annuitants who at the time of the gift are not sure when they will want to start receiving income.
Charitable Gift Types
The 5% probability test is a test described in Revenue Ruling 77-374 that requires all charitable remainder annuity trusts (CRAT) that will make payments for one or more lifetimes to have less than a 5% chance of corpus exhaustion. The test is conducted using the same facts used to compute the provisional charitable deduction for the gift.
A retained life estate plus charitable gift annuity combines two gift arrangements. The arrangements allow a donor to use some of the value of her home or farm to fund a plan that will make payments to her or others for life.
A retained life estate is a gift plan defined by federal tax law that allows an individual to donate her home or farm to a charity while retaining the right to live in it for the rest of her life.
The remainderman is the recipient of a trust's proceeds when the trust terminates.
In the context of planned giving, remainderman usually refers to the charity that will receive the final distribution from a charitable remainder trust or pooled income fund. Technically speaking, gift annuity and retained life estate gifts do not have a remainderman because the charity takes possession of the gift assets immediately.
A charity's remainder interest in a planned gift equals the present value of the promise to distribute the remaining principal of the planned gift when it terminates.
In the case of life income gifts, such as a gift annuity or a charitable remainder unitrust, the charity owns the remainder interest in the gift. In the case of a lead trust, individuals named by the donor own the remainder interest in the gift.
The remainder factor is the fraction of the funding amount of a planned gift that is considered a charitable contribution, expressed as a decimal. The remainder factor multiplied by the funding amount equals the value of the charitable contribution.
For example, if the remainder factor for a charitable remainder unitrust is .24561 and the unitrust is funded with $100,000, the value of the charitable contribution is .24561 x $100,000 or $24,561.
Reasonably commensurate value (RCV) is a measure of the present value of a gift annuity's payments at the time the gift annuity is funded. As of this writing, North Dakota, Oregon, Tennessee, and Washington are the only states that require a gift annuity's RCV to appear in the annuity agreement. California also used to impose this requirement, but legislation passed in August 2005 that removed this requirement, effective 1/1/2006.
North Dakota, Oregon, Tennessee, and Washington all accept the Investment in Contract amount as the RCV.
Publication 1459 is a book of federal tables used to compute retained life estate deductions. The edition that contains tables based on Table2000CM. It is available on the Web. The edition that contains tables based on Table 90CM is called Actuarial Values, Book Gimel. The edition that contains tables based on Table 80CNSMT is called Actuarial Values, Book Alpha.
Publication 1458 is a book of federal tables used to compute charitable remainder unitrust deductions. The edition that contains tables based on Table2000CM is called Actuarial Values, Book 3B. It is available on the Web. The edition that contains tables based on Table 90CM is called Actuarial Values, Book Beta. The edition that contains tables based on Table 80CNSMT is called Actuarial Values, Book Alpha.