If you’re not familiar with these, here’s a CGA primer from SmartMoney.com.
In many states your charity has to be approved by state authorities before you can offer CGAs as a gift option to residents of the state. This is for those that have that approval, or if your prospect resides in a state that doesn’t require approval.
The American Council on Gift Annuities has an informative site that includes a summary of regulations state-by-state. (I refer to the ACGA site often, but it’s not definitive for state regs. I always check the primary source–state law–before forming a final answer on a regulation question.)
Who do you talk to?
Prospects for CGAs are typically 65 and over, with most of the gifts coming from those who are in their mid- to late seventies. You should be actively listening to prospects all the time.
Clues that reveal you’re talking to a CGA prospect:
- I need more income
- I’m worried about retirement income
- I’m supporting a sibling; parent; or adult child (CGAs can be written so non-donors receive the lifetime payments.)
- My spouse will need income when I’m gone
- My stock dividends are low (CGA rates are higher than nearly every stock dividend.)
What do you say?
First, explain what long-term gifts do for you. Motivate prospects by feeding off what they already love: your charitable work.
Then, give your overview of the CGA features:
- simple agreement
- make your gift with cash or stock (or whatever state law and your gift acceptance policy say)
- steady, fixed payments for the lifetimes of one or two people
- what remains is a gift that supports our work
What if they’re interested in the financial features?
- rates vary with age; the older you are the higher your rate; would you like me to do a personalized overview for you?
- payments are steady and fixed for life (worth repeating)
- payments are backed by all the assets of the organization; have you seen our annual report on our site?
- assets are managed by X, with oversight by our CFO and/or board investment committee
- CGA program is approved by the state department of insurance (as appropriate)
What’s next?
Your prospect may want to talk to their husband or wife. Offer a personalized, written overview (assuming you have software to produce one) so they’ll have more detail and their discussion can be more informed.
This will get your charitable gift annuity conversations started. What have yours been like?
The American Council on Gift Annuities reduced recommended rates effective January 1, 2012.
It’s true that deductions of all types–charitable and otherwise–yield a lower rate for those in lower marginal tax brackets, but I wouldn’t say the deduction for gift annuities is “not so great” for those folks. Plus, the income they receive for life from their gift annuity is taxed at that lower rate, so in that respect a gift annuity is better for them than for those paying higher marginal rates. Generally, charitable gift annuities can be very good income supplements for those of modest means.
In this economy, Charitable Gifts Annuities are tricky. If you are managing your own annuities, you may want to re-consider accepting the American Council of Annuities Rates. These rates have not been revised in light of the mediocre performance of investments the past few years. Paying a 92 year old 8 or 9% might put a strain on your investment capabilities and minimize or eliminate completely your anticipated residual. My company uses an outside firm that has a sizeable enough investment portfolio to cover losses, should they occur. We receive the residual w/o the headache of managing the principal.
Finally, the tax benefits of creating a charitable gift annuity can be significant if you are in a high tax bracket and at a certain age. If you are living on a fixed income and at a lower tax bracket, the benefit is not so great. So keep this in mind, as investment savvy people are always looking at ways to lower their tax liabilities.
Good post Tony!
Go forth and close gift annuities!
Thanks for the helpful overview, Tony. I especially like the “five clues” that should key a planned giving officer into a CGA opportunity.
It’s my pleasure, I hope it helps you.
Much appreciated overview!