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Jerry's Top 10 Gift Annuity Questions

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When Jerry Claffie ’59 created a charitable gift annuity at Clarkson, he came prepared with 10 questions for the Annie Clarkson Society to answer. His questions were so good that we asked if we could share them with others interested in creating gift annuities:

1. What is the difference between a charitable gift annuity and a charitable remainder trust, and is either one better?
A gift annuity is a contract between the donor and Clarkson that guarantees a fixed annual payment to you (and/or someone else) for life, based on Clarkson’s assets. A charitable remainder trust is a separate legal entity that guarantees either fixed or variable payments to one or more persons for life and/or a term of years based on the assets in the trust. A trust is generally used for more complex gift and financial circumstances, or when a donor may wish to receive payments that will vary based on the investment performance of the trust. Neither one is better; each is used to fit different donor needs.

2. Why are there so many more gift annuities than trusts at Clarkson?
Gift annuities are simpler and easier to create. The contract is less complex, it costs almost nothing to create a gift annuity, and it is more economical to manage smaller gifts through a gift annuity pool rather than in separately managed trusts.

3. How do you determine our annuity rate?
The gift annuity payout rate is based solely on the age(s) of the annuitant(s) at the time the annuity is funded. Clarkson (and over 90% of other charities) follows a rate schedule recommended by the American Council on Gift Annuities (ACGA). The ACGA has recommended annuity rate schedules since 1927.

4. Can we make additional gifts to this annuity in the future?
Technically, no, you cannot add gifts to an existing annuity. But since it is so easy to create a new annuity (and often at a higher rate as we age), many individuals create a series of annuities over time to take advantage of higher rates as they age.

5. Do gift annuity rates ever change?
Once your annuity is created, the payout rate and your income amount never changes. Over time, depending on economic circumstances, the ACGA may make adjustments to the overall annuity rate schedule for new annuities, but this is done as infrequently as possible.

6. How does my annuity count in my reunion fundraising?
Whenever you create a gift annuity, the full value of your gift will count toward your next anniversary reunion fundraising effort. For example, a $10,000 annuity created anytime during your 46th through 50th reunion years will count as $10,000 in your 50th reunion fundraising.

7. Why is the amount of my charitable deduction only a part of my original gift amount?
Gift annuities are carefully structured to be consistent and fair to everyone. Part of your original gift will come back to you in your income payments each year (that’s why some of your income may be tax-free). Basically, the lifetime estimate of that amount is deducted from your gift, and the remainder becomes the value of your income tax charitable deduction.

8. Are there any costs to create or maintain my annuity? Is the process complex?
Gift annuities cost nothing to create, and Clarkson charges no fees for the management of gift annuities. Annuities pay a 1% annual fee to BNY Mellon for its services on Clarkson’s behalf. The process to create a gift annuity is very simple, and includes a (generally) 1-page agreement.

9. This gift will be cash. Could I give stock for future annuities?
Clarkson may accept cash, marketable securities, or a combination of both to create any gift annuity. In certain circumstances we may also accept real estate to fund an annuity.

10. How much of the annuity does Clarkson eventually get to use?
Using a variety of factors, the ACGA sets gift annuity rates with the assumption that the charity will receive 50% of the original gift value when the annuity terminates. Currently Clarkson shows about 85% of the original gift value as annuities terminate.

Do you have questions about gift annuities? Contact the Annie Clarkson Society for answers to your questions.
Click here to request our workbook, Will a Gift-with-income Plan Work for Me?
Create your own gift annuity projection with our gift-with-income calculator, or request a gift annuity projection from Clarkson.
View a Comparison Chart of gift-with-income plans.

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(rev. 3/2016)