Real Estate Gifting Realized: Charitable Gift Annuities
article in a series on real estate gifting issues covers charitable gift
annuities. The first three articles cover options when donating real estate, outright donations and bequests, and bargain sales.
Commercial real estate
professionals and their clients should consider all options when discussing the
charitable donation of real property. Real Estate Gifting Realized, a new
program launched by the CCIM Foundation, facilitates the donation of real
estate to charitable organizations. A donation may be made directly to the CCIM
Foundation or the Foundation can assist with the donation to a chosen charity.
A charitable gift annuity is when a
donor transfers a gift of cash, securities, or real estate to a charitable
organization in exchange for a guaranteed life income under a contractual
agreement. The annuity may be single for one life or a joint annuity for the
life of the donor and another person such as a spouse. The gift connected to
the CGA is irrevocable to benefit the donee organization.
A charity receives the asset, sells
it if necessary, and contributes the proceeds to a gift annuity reserve to make
payments to the donor. The amount of the charitable deduction for the donor
depends on the ages of the annuitants, the annuity rate, and the value of the
gift. A portion of the annuity income may be received by the donor tax-free as
a return of principal. The remainder will include ordinary income and capital
gains. Any capital gains taxes on the asset transferred in exchange for the
annuity are paid over the annuitant’s life expectancy. The charitable
organization generally issues a Form 1099R, detailing this information.
The amount of the payment to the
donor is fixed so there is no inflation protection. CGAs are not insured like
bank accounts and certain other investments, so if the charitable organization becomes
insolvent and is unable to make annuity payments, there is no recourse for the
donor. Donors are often concerned with this possibility, so many charitable
organizations utilize the services of insurance companies to reinsure the
There obviously is risk to a
charitable organization when issuing an annuity, so many charitable
organizations discount the fair market value of the property and issue an
annuity for a percentage of the value, such as 85 percent of the value. Other
charitable organizations look at the full fair market value but reduce payout
rates by 15 percent. There also is an option of a deferred payment gift
annuity, whereby payments don’t start for a period of time, generally 12 to 24
months, to give the charity time to sell the property.
CGAs cannot be issued in every
state because of differing regulatory requirements. Gift annuity rates are
established by the American Council on Gift Annuities, a national organization
that suggests rates for nonprofit organizations to offer to annuitants. The
recommended rates are based on age.
Before considering a CGA, donors
should discuss the pros and cons with their advisers. The rules on charitable
deductions to qualified charities are very detailed and require review at the
time a charitable donation is contemplated as the rules may change or be
impacted by current tax court decisions and case law.
Mary Stark Hood, JD,
CFP, is president of the Hood Group, which provides consulting services to
business organizations and foundations. She currently serves as a consultant to
the CCIM Foundation’s Real Estate Gifting Realized Program. Contact her at email@example.com. Learn more about the Foundation’s gifting program