Charitable Gift Annuities (CGAs)

Beginning January 1st, 2023, qualified charitable distributions (QCDs) can be used to fund charitable gift annuities (CGAs). Now, you might be wondering what on earth is CGA? Well, the short answer is it’s complicated. CGAs are similar to charitable remainder trusts (CRTs) in that they are lifelong contracts between you, a donor, and a public charity of your choosing. The charity invests your gifted funds and, in return, pays you a fixed income for life based on several factors: age, life expectancy, and whether there is one or two beneficiaries.

CGAs cannot be made to just any organization. They must be made to a 501(c)(3) qualified public charity. Examples of entities that do not qualify for CGAs would be donor-advised funds, private foundations, and supporting organizations, even though these are generally regarded as charities.

Brief Overview of Charitable Remainder Trusts (CRTs)

Charitable remainder trusts (CRTs) are the overarching category that charitable remainder unitrusts (CRUTs) and charitable remainder annuity trusts (CRATs) fall under. Some people are familiar with CRTs because they can be used to donate assets to charity in exchange for annual income. That annual income is directed toward the beneficiaries of the trust, regardless of who initially deposits the funds. Ultimately any finds left over belong to the charitable organization.

CGAs Differ from CRTs

CGAs are similar to CRTs in terms of their basic structure, but they differ in a few key aspects. CRTs are separate legal entities with their own entity agreement, beneficiaries, and annual 1041 filing. On the other hand, a CGA does not require its own agreement, a trustee, or a tax return.

CRTs tend to be larger in scale with assets totaling or exceeding upwards of $250,000. CGAs are on a far smaller scale. They must be funded exclusively by QCDs and the IRS limits contributions to a CGA to $53,000 per person (for 2024, indexed for inflation). For 2024, QCDs can total $105,000, but CGAs can only account for $53,000 of that amount. With CGAs, only the donor or his or her spouse is permitted to benefit from the interests of the donation. On the other hand, a trust may be more suitable for charitable givers looking to extend the gifts intergenerationally or outside of family members.

One of the most notable ways that CRTs and CGAs differ is their payment structure. Payments from a CGA are fixed and guaranteed by the public charity, while CRT payments are subject to the availability of trust assets.

This blog is just an introduction to CGAs and CRTs. For additional information and to determine whether or not charitable gift annuities fit your unique tax and giving strategies, we recommend that you schedule an appointment to further discuss the possibilities.