gift of annuities
A charitable gift annuity combines a charitable gift with an insurance contract that provides regular payments to the donor in exchange for a lump sum payment. This blend produces tax savings, a dependable payment stream and a gift for the charity.
The insurance contract provides the purchaser with guaranteed payments in exchange for a one-time initial payment. Annuities are widely available as an insurance product in Canada.
What makes charitable gift annuities different from commercial annuities is the charitable donation. The charitable donation will reduce the payments from the annuity, but it will increase the tax benefits.
Most charitable gift annuities are structured to provide payments for life, although term annuities also exist, such as a 10-year annuity. Annuities can be on a single life or two lives, although joint life annuities pay competitive rates.
The payment rate is determined at the time of purchase and does not change no matter how long you live.
The recommended minimum value of gift annuities is $25,000, although the amount varies depending upon the charity and insurance company involved. Assuris, the industry's not-for-profit organization, guarantees that annuitants can receive a maximum of $2,000 per month (up to $24,000 per year) from each company providing annuity payments.
Charitable gift annuities provide two types of tax benefits:
Charitable tax credit – The donor receives an immediate tax receipt for the gift amount. The receipt will produce a tax credit ranging from 40% to 50% depending upon the donor's province of residence and tax rate.
Tax-effective payments – The annuity pays a combination of tax-exempt capital and taxable interest. The older the donor, the greater the tax-free portion of the payments. It is this return of capital that makes annuity rates attractive relative to fixed-income investments. The higher payments can significantly increase after-tax cash flow to the donor.
For more information on a gift of annuities, please contact:
Associate Director of Development
Covenant House Toronto
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