Philanthropy has many benefits to those who can afford it. First, of course, is the feeling of "doing the right thing" by making a donation to a favorite charity and in turn seeing that charity succeed in their aims thanks you for financial contribution. Another benefit that appeals to philanthropists is also the tax deductions that come with a charity contribution. If you happen to have some money at your disposal and you are interested in donating to a charity, you may be wondering what is the most efficient way to make a charitable donation.



Many people are finding charitable gift annuity agreements an effective and worthwhile way to support their philanthropic efforts. These sorts of agreements are also beneficial because the donor often gets to collect a certain amount of income per year from their donation. Although the tax deduction for these sorts of donations is not as high as an outright lump sum donation, they can provide a wide variety of benefits for both the donor and the charity. This type of gift giving is ideal for people who are interested in donating money to a charity but would like a little something to show for it.



A charitable gift annuity is developed as a contract between the donor and the charity. The donor makes a large contribution to the charity, and the charity agrees, in turn, to repay a certain amount of the gift to the donor each year. The donor then selects an annuitant who will collect this money. This can be the donor or someone of the donor's choice. The annuitant receives this annual sum each year until the annuitant dies. It is the responsibility of the charity receiving the donation to guarantee that the money for the annual payment is available. What happens to the money immediately following that is dependent on the type of agreement, but after all annuitants have deceased, the leftover money goes back to the charity and stays there. This leftover money is called the "residuum."

When setting the rates for gift annuity, there are a few factors to consider. The primary factor to consider is age of the annuitant. Ideally, the charity should keep at least 50% of the original donation by the time that the annuitant is deceased. The guiding philosophy here is that younger annuitants, who are more likely to collect more payments than older annuitants, will receive payments at lower rates. Older annuitants, who will be collecting payments for fewer years, will get larger payments. If a younger annuitant receives payments at a rate that is too high, then there is the risk that the gift may be depleted beyond what was expected, sometimes to the point of total depletion. This obviously runs counter to the whole idea of making a donation.