Charitable gift annuities (CGAs) are designed to be the split-interest gift for any donor. The basic premise is that the donor contributes cash or marketable securities to a charitable organization, and the charity promises to make payments to the donor for the rest of his or her life. The donor receives a charitable income tax deduction at the time of the gift, and some portion of the original principal remains at the donor’s passing.

That all sounds great, right? A classic “win-win-win” arrangement, and in fact, most charitable gift annuities result in a significant portion of the original principal as the residuum. When a charity has a robust gift annuity program, there can be enormous financial rewards from the ongoing stream of CGA terminations. But we’ve all heard the other side of the story as well. There are far too many examples where the gift corpus becomes completely used up, and in fact, the charity ends up kicking in money from general funds to continue making payments to an annuitant who lived beyond their original life expectancy. We call these “underwater gift annuities,” and they actually end up with negative dollar benefits. 

So, what is the sum total benefit of this gift annuity venture from the charity’s perspective? Put simply, how does the charity even begin to measure the success of their CGA program?