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Can You Gift an Annuity? A Simple Guide

When we talk about giving gifts, we often think of presents wrapped with ribbons. But did you know you can also gift something like an annuity? Let’s explore this idea in simple terms.

What’s an Annuity?

First things first: an annuity is a contract. Think of it like a special deal between you and an insurance company. You give them money, and they promise to give you a fixed income for a set period or even your whole life.

Gifting an Annuity

Now, the big question: Can you gift this contract to someone else? Technically, you can. But it’s not as straightforward as handing over a birthday gift. There are rules, taxes, and other things to consider.

Income and Taxes

When you gift an annuity, two things matter: ordinary income and capital gains tax.

  • Ordinary Income: This is money you make regularly, like from a job or business. The person getting the annuity (the giftee) might have to pay taxes on the annuity payment they receive, just like they would on ordinary income.
  • Capital Gains Tax: If the annuity has grown in value since you bought it, there might be a capital gain. If the giftee sells the annuity, they might need to pay capital gains tax on the profit.

Special Kind of Annuity: Charitable Gift Annuity

There’s a special kind of annuity called a charitable gift annuity. It’s like the regular one, but with a twist. Here’s how it works:

  • Charitable Deduction: When you set it up, you get a gift or income tax deduction. This is a fancy way of saying you might pay less in income taxes that year.
  • Gift Annuity Payments: After giving money for the annuity, you or someone you pick gets payments for life. These gift annuity payments are a mix of ordinary income and tax-free money.
  • Charitable Gift Annuity Rates: These rates decide how much you or your chosen person gets paid. It’s often based on age. Younger donors might get less because they have a longer life expectancy (they’re expected to live longer). Older folks usually get more.

What Happens at the End?

Remember we said the annuity is a contract? Well, every contract has terms. In this case, when the person receiving the money (the annuitant) passes away or at the end of the contract, the remainder usually goes to a charity.

Why Do People Choose Charitable Gift Annuities?

Two big reasons:

  • Tax Benefits: As we discussed, you can get a charitable deduction which helps with income taxes. Plus, part of the gift annuity payments can be tax-free.
  • Fixed Income: It offers a steady income. For folks wanting to make sure they have regular money coming in, this can be a great choice.

Points to Ponder

  1. Death of the Annuitant: If the annuitant passes away earlier than expected, the rest of the money goes to the charity. So, it’s important to understand this when setting up the annuity.
  2. Younger Donors: If you’re younger and considering this, remember that charitable gift annuity rates might be lower for you because of your longer life expectancy.
  3. Always Consult an Expert: If you’re thinking of gifting an annuity or setting up a charitable gift annuity, always talk to a professional. They can guide you on tax benefits, how to receive payments, and other essential details.

Final Thoughts

Gifting an annuity can be a wonderful gesture, whether for a loved one or a charity. It promises fixed income, offers tax benefits, and can be a significant part of one’s financial planning. However, always make sure to understand the ins and outs, and when in doubt, seek guidance.






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