Yes, there are gift tax implications for the projected lifetime income of the two annuitants, which is reportable the year the CGA is established, (minus the exclusion for that year).

Ditto Sherman - what is a CGA?

if the donor retains the right to revoke the son's interest each yearly payment should qualifiy for the annual exclusion. This should shelter the annuity payment to the son from being a taxable gift to the extent it is under the annual exclusion amount.

Also, if establishing a DCGA (deferred charitable gift annuity where the first payment is scheduled more than one year from the gift date) then any capital gain on assets given would be immediately taxable to the donor, and the annual gift tax exclusion would not apply. Any size gift would have to be reported as a taxable gift (Form 709), although there would not be any tax liability unless the total of this gift (present value) and any prior taxable gifts exceed $1,000,000 (the gift amount sheltered by the gift tax credit).

A Charitable Gift Annuity (CGA) is an excellent option for an individual (up to two individuals per agreement...usually husband and wife) to give to a charity and still have use of the funds. He gets an immediate deduction (partial) and an agreement for set dollar payments for the rest of his life from the charity. At the end of the life of the annuitant(s), the charity has full use of the funds. Annuity payments are typically calculated using the recommended rates from the American Council on Gift Annuities and are dependent upon age. Payments may be deferred. Part of the payments may be taxed at normal income tax rate, part may be tax free, and part, if using highly appreciated assets, may be taxed at the capital gains rate. This is a great way for older clients to give low yielding long term capital gains stock in exchange for payments that will not change. Some Foundations issuing CGA's allow the individual to name OTHER CHARITIES to receive the charitable portion.

Yes, a CGA could make sense for some seniors. However, a true cost comparison requires you compare a CGA with the purchase of a private annuity. As you will see, the income stream will be lower under the CGA. That is because the charity is a partner in this transaction, and is required to receive a minimum payout after the last death (or term if a fixed number of years). This payout requirement effectively reduces the portion of the annuity income stream available to the senior.

As a result, the donor to a CGA should really have a charitable intent; in this case, it can be an excellent choice. Otherwise, a private annuity is likely the better choice from strictly a cash flow perspective. Also, unlike CDs and other assets in an investment portfolio, the annuity terminates at the last death (or term), and the funds are not available for leaving a legacy. If this is an important consideration for the senior, the annuity option is less appealing.

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