Charitable Gift Annuity

A charitable gift annuity is often a consideration for those at or beyond retirement age, who are searching for a way to support the charity of their choice now while also "pensionizing" a part of their investment portfolio. Implementation of this strategy is appropriate for those that either want to reduce the risk of their existing investments or look to improve their retirement income beyond that which can be provided by low interest GICs.

Here is how it works. A donor makes a contribution to the charity of their choice. The Canadian Revenue Agency (CRA) stipulates that at least 20% of the amount contributed be a donation to charity with the balance funding a life annuity in most cases. Using these funds, the charity will normally purchase a commercial annuity from a life insurance company. Based on the amount of your contribution and your age, you will receive mostly tax free guaranteed monthly income payments from the annuity for life.

Most often, our clients will have a target income they would like to achieve from which we determine the contribution amount required.

For instance, say a 65 year old widower has significant mutual fund investments which she really doesn't understand and stresses over particularly after seeing the funds collapse in value late in 2008. She has determined that she needs $5,500 more "pensionized" guaranteed income per year to supplement her CPP and OAS. She would also like to give a significant gift now to the local hospital that made her husband so comfortable in his final days. A charitable gift annuity would satisfy all of her goals. At her age, about $75,000 would be required to support the life annuity that would pay her $5,500 a year for life. She could transfer ownership of about $100,000 of mutual funds, at market value, to the charity (and avoid unrecognized capital gains). She would then have made an immediate gift of $25,000 to the hospital, set up an annuity that gives her $5,500 in guaranteed income for life and will receive a charitable tax credit for approximately $11,250 to reduce her taxes anytime over the next 5 years.

Charitable gift annuities are not the best strategy for everyone. There must be a sincere desire to make an immediate gift and the life annuity must fit well with the other components of your investment portfolio to adequately support your financial security through your retirement years. As well, if there is an additional goal to leave an inheritance for your children, a "Charitable Insured Gift Annuity" might be a better choice.

Contact us and we'll evaluate what giving strategy meets your goals and financial plans most effectively.

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