Illinois Charitable Gift Annuity
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How to fill out Charitable Gift Annuity?
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FAQ
It is possible to donate an annuity to a charity. Doing so requires adjusting either the owner or the beneficiary of the annuity; these are two of the four parties in an annuity contract. The insurance company issues the contract. The annuitant receives payments during his/her lifetime.
Individuals or couples can set up a charitable gift annuity. (You are the annuitants, which is the specific name for beneficiaries of annuities and many insurance policies.) Depending on the charity, your annuity can be funded with cash donations, but potentially also securities and gifts of personal property.
The Charitable Gift Annuity is also attractive for the charity because, unlike a charitable bequest, a Charitable Gift Annuity is an irrevocable gift. The charity need not worry about last minute changes to the donor's plan by the donor or nefarious heirs, because the transfer is already complete.
Annuity Gifts In general, the person who gives the gift is responsible for paying this tax. The Tax Code provides a lifetime exemption (currently $11.58 million per person in 2020). As long as your total lifetime gifts and estate are below this amount, you don't have to pay taxes when you gift an annuity.
As long as your total lifetime gifts and estate are below this amount, you don't have to pay taxes when you gift an annuity. However, the annual exclusion amount for gifts, according to the IRS, is $15,000. If you transfer an annuity worth more than $15,000, you must file a gift tax return, even though no tax is due.
Tax reporting requirements. The instructions say: If cash or capital gain property is donated in exchange for a charitable gift annuity, report distributions from the annuity on Form 1099-R. Report in box 3 any amount from a charitable gift annuity that is taxable as capital gain.
If the gift annuity is funded with cash, part of the payments will be taxed as ordinary income and part will be tax-free.
If you fund the gift annuity with appreciated securities or real estate owned more than one year, part of the payments will be taxed as ordinary income, part as capital gain, and part may be tax-free. In most instances, the payments will eventually be taxed as ordinary income.
The Bottom Line. If you want to make a significant contribution to a charity you care about but also want the security of a fixed, reliable income for life a charitable gift annuity could be a great choice.
So long as you transferred ownership more than three years before dying, the value of the annuity won't go into your taxable estate. But if you give the annuity as a gift, you have to pay tax on any gain at the time of the transfer. Additionally, you might be liable for gift taxes depending on the value of the annuity.
