Charitable Gift Annuities Are Back In Vogue – And Here’s Why

Created By: Lauren Hancock
August 8, 2023

Charitable Gift Annuities (CGAs) are having a moment. With significant increases in annuity rates and the IRS discount rate over the past year and a half, CGAs are more attractive than they have been in a long time. Before we get into how and why you might focus on soliciting CGAs, let’s make sure we’re all on the same page about what a CGA is and how it works.

A CGA is a charitable fixed-income product that provides fixed annuity payments to the donor or another person (annuitant) for life and creates a gift to the charity at the end of the annuitant’s life. The annuitant is most commonly the donor and/or a spouse, but the donor can also designate another person as an annuitant. This gift:

• Provides a steady stream of income to the annuitant(s).
• Creates charitable impact for the organization.
• Can provide tax-saving solutions.

CGAs have been around for over 100 years – they were “trendy” in the 90s, and then again around 2008. Now, they are in vogue again – and for good reasons:

• Annuity rates have increased twice in less than a year.
• The IRS discount rate has increased dramatically in the last two years from 0.6% in March 2021 to 5% in August 2023, which is higher than it has been since 2008.

The combination of high annuity rates and a high IRS discount rate means that the donor/annuitant will benefit from both a higher annuity payment and a higher income tax deduction now than they would have if they set up a CGA a year or two ago.

Now, let’s think about when this type of gift might be the right fit for a donor.

• Have you ever had a donor tell you they need income for retirement but wish they could make a gift to your organization?
• Has a donor recently expressed concern about stock market volatility?
• Do you know a donor looking to provide for someone else, like a parent, a spouse, or an older child?

If you answered yes to any of these questions and your organization accepts CGAs, you may want to think about a CGA as an option for these donors. From the fundraiser’s perspective, CGAs can be a great way to get a lower-level campaign prospect to a stretch gift. For example, in a recent ask for a $25k campaign gift, the donor said he could not reach that level given that he just hit retirement age during an economic downturn and his stock portfolio is down. In response, we presented the option of a blended gift structure with a combination of a $15k three-year pledge and a $10k CGA, and that piqued his interest. This gift structure provided a solution that could get the donor to the desired gift level, while also providing income stability.

If you have a charitable gift annuity program, here are three things you can do right now:

1. Include a CGA update in your next newsletter or appeal or on your website to inform readers about the increase in annuity rates, the IRS discount rate, and the recent passage of the IRA Legacy Act. In my experience, donors are often unaware of the variety of ways that they can give and recent legal changes that impact charitable donations.

2. Analyze your donor data to identify donors who may be interested in CGAs and send them a targeted email and/or mailing. When segmenting your data for CGA prospects, look at donors who are around retirement age or have retired, individuals who are likely to be on a fixed income or receiving a pension, and donors who have a lower estimated capacity rating and may be interested in receiving an annuity. Tracking responses to mailings and emails and following up with donors who express an interest is critical to turning mailings or emails into gifts.

3. Train gift officers on the basics of how CGAs work so they can talk to their prospects about CGAs as appropriate. Talking points and a one-pager can help gift officers have the tools to easily talk about CGAs with donors as appropriate. A gift officer should know the basics of all the gift vehicles the organization accepts and be able to identify what types of gifts may be appropriate for a donor.

Want to help your donors make a tax-savvy gift, but don’t know where to start or how to get the rest of your team on board with planned gift strategies? We can train your team on CGAs and other planned gift tools, identify CGA and planned gift prospects for you, and help you communicate the value of planned gifts to your donors.

Lauren Hancock is a Senior Director and Head of Donor Engagement at Orr Group. Lauren brings expertise in planned giving and collaborates with Orr Group’s partners to advise on and implement sophisticated planned giving strategies that drive long-term revenue growth.