Charitable Gift Annuity

The index adjustment uses the average Chained Consumer Price Index for All Urban Consumers (C-CPI-U) for each calendar year with 2022 as the base year. The average for a calendar year is taken from 9/1 of the previous year through 8/31 of the current year. Indexing starts with 2024, so the first adjustment will include 9/1/2021 - 8/31/2023. A fair estimate is that there will be an inflation adjustment of 10% to 15% for that period. If that is correct, the limit on outright QCDs would be between $110,000 to $115,000 and the limit on QCDs to a CGA would be between $55,000 to $58,000 (rounded $57,500 to nearest $1,000).

What is the “Legacy IRA”? Under certain circumstances, a donor can make a one-time tax-free Qualified Charitable Distribution (QCD) from their IRA in exchange for a life income gift. This is a once in a lifetime election, subject to the limitations explained below.

Updated 3/8/2024: New York and ACGA maximum annuity rates no longer in conflict
A new law went into effect in New York on January 23, 2024 that revised how New York computes its maximum annuity rates. As a result, no current New York maximum annuity rates are lower than the corresponding maximum annuity rates currently suggested by the American Council on Gift Annuities (ACGA). Under the new law, New York will update its rates every July 1 and January 1. The ACGA updates its rates periodically, as well. It is unlikely that conflicts between New York and ACGA maximum annuity rates like the ones described below will arise again, but it could happen under certain unusual circumstances. We will update this post again if any future New York maximum annuity rates become lower than their corresponding ACGA rates.

Here’s the problem:
The ACGA, in an April 2021 communication, informed its members that the ACGA suggested maximum payout rates exceed the current maximum payout rates allowed by the State of New York at the typical ages of most gift annuitants. While there are a number of states that regulate gift annuities, New York is the only one that issues its own maximum allowable gift annuity payout rates for its residents. Until recently, the ACGA suggested maximum payout rates have been consistently lower than the New York maximum rates.

What we have determined:  
Our most recent analysis reveals that the ACGA rates exceed the maximum New York rates applicable to gift annuities funded in October – December 2021 for females at ages 45 through 88 and for males at ages 46 through 85. That’s pretty much the age group for new gift annuities! Please note, the NY maximum payout rates are published only for 1-life annuities, and they are gender-specific. The state does not currently publish maximum payout rates for 2-life gift annuities, or for any type of deferred gift annuities.

When doing calculations for a deferred gift annuity, two dates related to the timing of the first payment come into play, the date of first payment itself and the so-called “annuity starting date.” While the date of first payment is the far more familiar concept of the two, only the annuity starting date is a central component of calculations performed in PGM Anywhere. Gift planners will benefit from understanding the difference between these two dates on how they are used in PGM Anywhere’s calculations.

Here’s the problem:
The ACGA, in an April 2021 communication, informed its members that the ACGA suggested maximum payout rates exceed the current maximum payout rates allowed by the State of New York at the typical ages of most gift annuitants. While there are a number of states that regulate gift annuities, New York is the only one that issues its own maximum allowable gift annuity payout rates for its residents. Until recently, the ACGA suggested maximum payout rates have been consistently lower than the New York maximum rates.

What we have determined:  
Our recent analysis revealed that the ACGA rates exceed the maximum New York rates applicable to gift annuities funded in April – June 2021 for females at ages 46 through 91 and for males at ages 46 through 86. That’s pretty much the age group for new gift annuities! Please note, the NY maximum payout rates are published only for 1-life annuities, and they are gender-specific. The state does not currently publish maximum payout rates for 2-life gift annuities, or for any type of deferred gift annuities.

The Record Death function in GiftWrap is designed to make adjustments to the payment and tax information for gift annuities. When an annuitant is deceased, the function can move future payment and tax information to a successor beneficiary, if any, or remove future payment and tax information for terminated gifts and change the gift status to Finished.

However, GiftWrap can make these adjustments automatically only for deaths in the current or immediately prior Organization Year. If the death occurs two or more years earlier than the current Organization Year, the Record Death function will mark the annuitant as deceased, but all adjustments to the payments and tax schedule must be done manually.

On April 26, 2018, at the American Council on Gift Annuities’ biannual conference, David Ely, chairman of the ACGA’s Rates Committee, announced an increase in its suggested maximum gift annuity rates. David explained that after reviewing the model portfolio the ACGA uses for determining the interest rate assumption used in setting rates – 40% equities, 55% bonds, 5% cash – the committee determined that this interest rate assumption should increase from 4.25% to 4.75%.

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.

Under Republican leadership, Congress is working feverishly to complete the details of sprawling tax reform legislation, the Tax Cuts and Jobs Act, and have it on President Trump’s desk for his signature by the end of this year. The House bill was voted on and approved on November 16.  On the same day, the Senate Finance Committee approved their version of the package.

Including revocation language serves two purposes. First, it may enable the donor to avoid making a taxable gift to the annuitant. Second, it preserves flexibility in the event of a change in circumstances, such as the dissolution of a marriage. The decision on whether to include the revocation language is ultimately the donor’s, but it is helpful if the charity understands the issues to help inform that decision.