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of Terms
deferred payment gift annuity
A deferred payment gift annuity (DPGA) provides a guaranteed, fixed income for the
life of the donor or another designated beneficiary beginning at age 60 or older.
It is similar to a charitable gift annuity except the beneficiary’s income
payments are deferred to a later date. That provides a higher charitable tax deduction
when the gift is made and locks in a higher payout rate. For example, a 50-year old
donor agrees to make a gift now, but defers receiving payments until she/he reaches
age 65 when it will serve as supplemental retirement income. The deferral of payments
locks in a higher fixed rate.
The gift assets are commingled with Smith’s endowment and are backed by the
total assets of the college. There are no management fees or investment worries for
donors. The minimum gift amount is $10,000. Annuitants must be at least age 60 when
payments begin.
Annuity payments are determined by three things:
Age of the beneficiary at the time of the agreement
Age of the beneficiary when payments begin
Length of deferral—the longer the deferral, the higher the rate
Sample Rates for Deferred Payment Gift
Annuities
Current Age |
Defer to Age |
Fixed Rate |
45 |
60 |
13.2% |
50 |
60 |
10.1% |
55 |
60 |
7.7% |
60 |
65 |
8.1% |
Deferred payment annuities based on two lives are also
available, but the rates are generally lower.
A substantial portion of each payment is tax-free. Even though the beneficiary does
not start receiving payments until a pre-selected future date, a portion of the gift
is immediately deductible for federal income tax purposes on an itemized return.
Capital gains are reduced and can be reported over a number of years (if the donor
is also the income beneficiary).
estate tax
Estate tax is levied on transfers of wealth that happen at death. Currently an individual can leave $2 million to others before triggering an estate tax. That threshold will increase to $3.5 million in 2009, and in 2010 the estate tax will be repealed entirely. On January 1, 2011, estate taxes will be reinstated for estates above the $1 million level.
flexible gift annuity
A A flexible gift annuity is structured so that the annuitant has control over the
date at which payments begin. This may be a good gift vehicle for those who are unsure
of their retirement date.
flip trust
A “flip” trust is a hybrid of a net income trust and a standard unitrust.
This vehicle is especially useful when funding a trust with an illiquid asset such
as real property or tangible personal property. Until the asset is sold, the trust
only pays the lesser of the net income or the stated payout rate. Once the illiquid
asset is sold, the trust “flips” and begins to act like a standard unitrust
paying the stated payout rate.
gift annuity
A gift annuity is a contract whereby the donor makes a gift to the college and, in
turn, Smith promises the donor, or another specified beneficiary, a fixed dollar
payment every year for life. The yearly payment is based on the amount of the gift
and the age of the income beneficiary at the time of the gift. Gift annuities may
be for one or two lives but both beneficiaries need to be at least 60 years of age.
gift tax
Gift tax is levied on gifts to non-charitable beneficiaries. As of 2006, an individual can give away $12,000 each year to as many people as she wishes without being subject to gift tax. Transfers over and above that $12,000 may be subject to gift tax.
health care proxy
You can assign someone you trust the authority to make important medical decisions
on your behalf if you should become unable to do so yourself. |
