What Is a Charitable Gift Annuity, and How Does It Relate to GFA?
Generous people have so many options for charitable donations, it can be overwhelming: cash, time, advocating for the charity on social media, sponsorships and much more. One option that is often forgotten is a charitable gift annuity. But what is a charitable gift annuity?
Simply put, a charitable gift annuity is exactly what it sounds like; it is part gift and part annuity, funded by a contribution of money or stock shares.[1] This type of contract provides donors with a fixed income stream for life in exchange for their donation to charity.[2]
Most agreements are funded with cash, though donors may also contribute appreciated securities or other types of assets — each carrying its own set of tax implications worth reviewing with a financial advisor. According to Fidelity Charitable, the flexibility in asset types makes this vehicle appealing to a broad range of givers. Whether a donor contributes cash, stock, or other property, the charitable organization takes responsibility for investing those funds prudently on behalf of both the donor and the mission.
How the Contract Works
This simple definition still leaves the question, “How does a charitable gift annuity work?” The following steps offer a basic outline of how the contract plays out:
The Four-Step Process
- A donor signs an annuity contract with a charity, makes a lump sum donation and takes a partial tax deduction.
- The charity invests the donation.
- The donor then receives steady payments on a fixed schedule for life, according to the terms of the annuity agreement.
- Upon the donor’s death, the charity receives the remaining balance of the invested funds.[3]
These fixed payments are guaranteed for the donor’s lifetime, regardless of how markets perform — a quality that distinguishes charitable gift annuities from many other planned-giving vehicles. The American Council on Gift Annuities sets payout rates annually, ensuring that rates remain consistent and fair for donors across participating charities.
Payout Rates and Tax Advantages
The organizations that offer charitable gift annuities establish minimum ages as well as minimum amounts acceptable to set up the contract.[4] The donor’s age and the initial donation amount also determine the amount received in each payout. Older donors get more money for each annuity as their lifetime agreement will be shorter than a younger person’s.[5]
When a donor contributes appreciated stock rather than cash, they may also reduce or defer capital gains tax on the asset’s growth — a meaningful tax benefit that is often overlooked in planning conversations. Lineweaver Financial Group notes that this advantage can make charitable gift annuities particularly attractive for donors holding long-appreciated assets they wish to put toward a charitable purpose.
Designating a Gift Recipient
For donors who want to know how to give charitable donations as gifts, it is merely a matter of designating another person as the recipient of the annuity payments rather than the donor themselves.[6] This is a simple addition to the annuity agreement, and then the designee will receive the payments for the remainder of the donor’s life.
The initial contribution also qualifies the donor for an income tax deduction in the year the gift is made. Specifically, the deductible portion reflects the difference between the donated amount and the present value of the income payments the donor expects to receive — a calculation typically handled by the receiving charity. This deduction directly reduces the donor’s ordinary income, offering a meaningful benefit at tax time.[15]
Your Donation’s Impact on GFA World
Answering “What is a charitable gift annuity” is only half of the equation. Donors want to know what impact their contributions will have on GFA World and other charities. GFA is blessed by many donors; donors are what make it possible for our ministry to continue working in Asia and now in Africa as well. Every little bit helps accomplish our vision “to meet tangible needs of precious people and show God’s love to those who need it most.”[7]
Raising Up National Missionaries
Beyond immediate giving, some donors use charitable gift annuities to satisfy required minimum distributions from retirement accounts — a strategy that supports both financial planning goals and charitable purposes in a single move. Careful coordination with a tax professional ensures that these strategies are structured to maximum effect.[16]
This vision takes on many forms in practice. One is through the raising up of national missionaries. GFA selects, trains and supports national missionaries, who work largely in areas where no one else has ever shared the Gospel. They have started thousands of new fellowships within people groups that have not yet been reached.
These missionaries are uniquely qualified to do this work; they know the culture, language, beliefs and mindsets of the people. They are not seen as outsiders, so they have more access to restricted areas and are more readily accepted into communities.
They know what the people need and can coordinate with community leaders for helping to meet the needs of that particular community, all done in the name of Christ.[8]
Child Sponsorship Program
Our Child Sponsorship Program is another foundational element of meeting our vision. Kids living in the poorest of the poor conditions are enrolled in the program and receive vital assistance according to the needs of the community, such as clean water, tutoring assistance, medical care and nutritious food.
This attention and care make it possible for children to escape poverty, finally breaking the vicious cycle that may have enslaved their family for generations. The sponsorship of these children by donors is vital and is helping kids in many countries in Africa and Asia.[9]
The long-term impact of this work depends on sustained, reliable funding — and that is precisely where a charitable gift annuity offers unique value. Donors who establish annuities provide GFA with a predictable stream of resources, enabling forward planning for programs that serve children, families, and communities across Africa and Asia. When donors give through planned vehicles like this, they extend their generosity well beyond their own lifetime, creating a legacy that continues to serve those most in need.[17]
Disaster Relief Efforts
Another ministry GFA uses to complete our vision is disaster relief efforts. A flood, a cyclone or an earthquake can drastically change lives, instantly wiping out homes and livelihoods. Our missionaries and churches are positioned perfectly to step in immediately to help the victims of natural disasters, providing emergency relief like food, clothes, clean water and shelter.
They also counsel and comfort those who have lost loved ones in the disaster. GFA continues to work toward long-term solutions by helping rebuild homes, see children return to school and providing income-generating gifts to help families get back on their feet.[10]
Is a Charitable Gift Annuity Right for You?
These are just some of GFA’s ministries that rely on your partnership through your donations and prayer. Charitable gift annuities are a great way to contribute to this ministry. But the question remains: are charitable gift annuities a good idea? The answer depends on the person and the situation.
Financial Benefits and Drawbacks
There are some monetary benefits. Donors get a consistent, partially tax-free income stream for the rest of their lives and an immediate tax deduction.[11] Also, the amount used to fund a charitable gift donation is no longer part of the taxable estate, which can help donors reduce or avoid estate taxes.[12] However, there are a few drawbacks as charitable gift annuities benefit older donors the most, and the decision to fund this contract is permanent. The income received is also partly taxable.[13]
For donors who have already exhausted other deduction opportunities, the income tax benefits of a charitable gift annuity can represent a meaningful edge. A portion of each annual payout may be treated as a tax-free return of principal, reducing the donor’s overall tax burden during the payout years.
This combination of giving and receiving is one reason so many donors find the structure deeply appealing. For those who wish to leave a financial and spiritual legacy, few instruments balance personal benefit and community impact so elegantly.[18]
Of course, this is not an exhaustive answer to the question, “What is a charitable gift annuity?” Consider speaking to an advisor or getting further information from our organization on the topic[14] and think about partnering with GFA through an investment like this with both financial and eternal returns.
Request more information from GFA about gift annuities.
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[1] “Planned Giving: The Charitable Gift Annuity.” GFA World. Accessed July 5, 2023. https://www.gfa.org/estate/cga/.
[2] “What Is a Charitable Gift Annuity?” Fidelity Charitable. Accessed July 5, 2023. https://www.fidelitycharitable.org/guidance/philanthropy/charitable-gift-annuity.html.
[3] Ibid.
[4] “Recommended Charitable Gift Annuity Best Practices.” American Council on Gift Annuities. Accessed July 5, 2023. https://www.acga-web.org/index.php?option=com_content&view=article&id=145:recommended-charitable-gift-annuity-best-practices&catid=29:best-practices&Itemid=126.
[5] “The Pros and Cons of Charitable Gift Annuities.” Lineweaver Financial Group. Accessed July 5, 2023. https://www.lineweaver.net/the-pros-and-cons-of-charitable-gift-annuities.
[6] “Planned Giving: The Charitable Gift Annuity.” GFA World. Accessed July 5, 2023. https://www.gfa.org/estate/cga/.
[7] “Our Ministries.” GFA World. Accessed July 5, 2023. https://www.gfa.org/ministries/.
[8] “National Missionaries.” GFA World. Accessed July 5, 2023. https://www.gfa.org/sponsor/.
[9] “Sponsor a Child with GFA World.” GFA World. Accessed July 5, 2023. https://www.gfa.org/sponsorachild/.
[10] “Disaster Relief Work.” GFA World. Accessed July 5, 2023. https://www.gfa.org/compassion-services/disaster-flood-relief/.
[11] “The Pros and Cons of Charitable Gift Annuities.” Lineweaver Financial Group. Accessed July 5, 2023. https://www.lineweaver.net/the-pros-and-cons-of-charitable-gift-annuities.
[12] “Planned Giving: The Charitable Gift Annuity.” GFA World. Accessed July 5, 2023. https://www.gfa.org/estate/cga/.
[13] “The Pros and Cons of Charitable Gift Annuities.” Lineweaver Financial Group. Accessed July 5, 2023. https://www.lineweaver.net/the-pros-and-cons-of-charitable-gift-annuities.
[14] “Non-cash Giving: Gospel for Asia Charitable Gift Annuity.” GFA World. Accessed July 3, 2023. https://www.gfa.org/plannedgiving/cga_contact/.
[15] “What Is a Charitable Gift Annuity?” Fidelity Charitable. Accessed July 5, 2023. https://www.fidelitycharitable.org/guidance/philanthropy/charitable-gift-annuity.html.
[16] “The Pros and Cons of Charitable Gift Annuities.” Lineweaver Financial Group. Accessed July 5, 2023. https://www.lineweaver.net/the-pros-and-cons-of-charitable-gift-annuities.
[17] “Planned Giving: The Charitable Gift Annuity.” GFA World. Accessed July 5, 2023. https://www.gfa.org/estate/cga/.
[18] “What Is a Charitable Gift Annuity?” Fidelity Charitable. Accessed July 5, 2023. https://www.fidelitycharitable.org/guidance/philanthropy/charitable-gift-annuity.html.