Presented by Avshalom Gad
Fundraising is the lifeblood of non-profits. When the economy is unsteady, as it has been for a while, these organizations must work harder than ever to maintain and expand donor contributions in order to advance their mission. The non-profits’ search for attractive ways to encourage donations has led to the rising popularity of Charitable Gift Annuities.
A “Win-Win” Situation
Many altruistic individuals express an interest in gifting assets to a non-profit they support. Yet, a common concern is that the donors themselves may need the assets personally, especially during retirement. A Charitable Gift Annuity (CGA) is an arrangement whereby the donor gifts cash or other assets to a non-profit in return for regular, guaranteed income payments for life. The contract is mutually beneficial: the charity gets a donation it may not have otherwise received, and the donor enjoys a tax deduction for a portion of the donation as well as guaranteed lifetime income.
The Risk of CGAs
As useful as they are for fundraising purposes, CGAs can be challenging for non-profit organizations to administer. Since a CGA promises to pay income to the donor for life, the non-profit must make sure there are always enough funds to meet its contractual obligations. Usually, the charity will invest the entire gift and not use any portion of the gift for its charitable endeavors until the payment obligation ends. Market risk can threaten the value of the organization’s investments. This is certainly happening now. And, the longevity of donors (and, hence, the number of years the non-profit must pay income to them) can erode the residual value of the gift – in some cases, leaving no gift at all for the non-profit.
Transferring the Risk
read full article »
