Deferred-Payment Gift Annuity

This type of gift might appeal to you if you want to support the UW Foundation, you’re 40 to 60 years old, you need to benefit now from a current tax deduction, and you are interested in augmenting your future income.

The deferred-payment gift annuity involves the current transfer of cash or marketable securities in exchange for which the UW Foundation agrees to pay the donor an annuity starting at a future date—usually at the donor’s retirement. The gift can consist of a single transfer, a series of transfers, or periodic transfers to the plan in high-income years.

You realize an immediate charitable deduction for the gift portion of each transfer to the deferred gift-annuity plan. A portion of each annuity payment, when the payments begin, will be a tax-free return of principal over the life expectancy of the annuitant. When appreciated, long-term, capital-gain securities are transferred, any reportable capital gain is spread out over the donor-annuitant’s life expectancy.

For example, Dr. Evelyn Garwood, 55, decides to make annual cash contributions of $10,000 to the UW Foundation in exchange for deferred-payment gift annuities. Payments are to begin upon her retirement in ten years and continue for the rest of her life. The tax and financial benefits of this arrangement to Dr. Garwood are as follows:

  • She will receive an annual annuity payment of $5,570, to begin when she reaches the age of 65 and to continue for the duration of her life.
  • She will be allowed charitable deductions totaling approximately $32,800 over ten years—which represents 32.8% of her total contributions of $100,000. (The annual deduction will vary from $3,184 for the first year to $3,324 for the last year.)
  • Unlike a qualified retirement plan, there are no upper or lower limits to her contributions or other restrictive requirements on the design of the plan.

Deferred-Payment Gift Annuity Diagram

Benefits

  • Guaranteed payments for life that are favorably taxed
  • When gift is funded with cash, part of payment will be tax-free
  • When gift is funded with appreciated property, part will be taxed as capital gain, part will be tax-free, and part will be taxed as ordinary income
  • Federal income-tax deduction for a portion of your gift
  • Gift will provide generous support for the UW Foundation