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What is a Charitable Gift Annuity?

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For donors who wish to make a gift to their favourite charity but hesitate when they think about future cash requirements, a Charitable Gift Annuity is a viable option. Through a combination of an annuity and a Donor Advised Fund (DAF), donors can be guaranteed a steady income stream while also maximizing tax benefits and supporting their preferred charity during their lifetime.

In this article, we’ll define what a Charitable Gift Annuity is, types of annuities, and how a Donor Advised Fund with Gift Funds Canada can help donors get the best of both worlds—supporting a charitable cause and investing for the future.

In essence, Charitable Gift Annuities can be considered part investment and part charitable gift.

An annuity is simply a term that means a series of payments made at equal intervals. A Charitable Gift Annuity is a gift vehicle and when combined with a Gift Funds Canada Donor Advised Fund, enables a donor to make a charitable gift during their lifetime without jeopardizing their access to supplemental income, both now and in the future. In essence, Charitable Gift Annuities can be considered part investment and part charitable gift.

Getting Started With Charitable Gift Annuities

Working with their preferred insurance advisor, a donor can purchase an annuity with personal savings, such as appreciated securities, or from a registered account like a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF). In the case of registered accounts, holders are required by the CRA to convert their account into an income stream by age 71, making registered accounts ideal for purchasing an annuity. In either case, the donor can purchase an annuity that is best tailored to their financial needs, choose to gift any excess capital to their Donor Advised Fund and benefit from an immediate donation receipt.

Giving Using A Current Annuity

There are several ways a donor can leverage an annuity to reach their investment and philanthropic goals. One of the most appealing options for the cash-conscious donor is using a current annuity. The combined benefits of purchasing an annuity and establishing a Donor Advised Fund with Gift Funds Canada can provide supplemental income for the donor’s lifetime and the lifetime of their spouse—called a joint and lasting survivor annuity. This option provides immediate tax benefits while allowing the donor to support a case that is close to their hearts for years to come.

Giving Using A Deferred Annuity

In many cases, annuity income can be deferred for up to 15 years, which can be beneficial for donors wishing to postpone annuity income to a later date, such a retirement. With this option, donors can purchase an annuity now and donate any excess capital they wish to their Donor Advised Fund with Gift Funds Canada. As a result, the donor receives an immediate tax benefit while deferring the income from their annuity until the future date of their choice. Donors can begin granting to their favourite causes immediately and enjoy additional tax benefits in the future by topping up the Donor Advised Fund with new gifts.

Understanding what an annuity is and how combining it with a Donor Advised Fund with Gift Funds Canada can provide donors with a unique opportunity to support their charity of choice and plan their future investments. In both cases stated above, a current annuity and a deferred annuity, the donor typically makes the gift today that they would otherwise be deferred until a future date as a result of future income needs. An annuity allows the donor to arrange a guaranteed indexed income stream today based on future needs, enabling them to free up capital to support their preferred charity that might otherwise remain locked up in traditional financial assets.