The Deferred-Payment Gift Annuity

This type of gift might appeal to you if you want to support Northfield Mount Hermon School, you're 40 to 60 years old, have a high income, need to benefit now from a current tax deduction, and are interested in augmenting potential retirement income.

The deferred-payment gift annuity involves the current transfer of cash or marketable securities in exchange for which Northfield Mount Hermon School agrees to pay the donor an annuity starting at a future date—usually at the donor's retirement. The gift can consist of a single transfer, a series of transfers, or periodic transfers to the plan in high-income years.

You realize an immediate charitable deduction for the gift portion of each transfer to the deferred gift-annuity plan. A portion of each annuity payment, when the payments begin, will be a tax-free return of principal over the life expectancy of the annuitant. When appreciated, long-term, capital-gain securities are transferred, any reportable capital gain is spread out over the donor-annuitant's life expectancy.

For example, Mr. and Mrs. Cullen, both 45, wish to supplement their retirement income with deferred-payment gift annuities. After consulting with their own financial advisors and a member of our staff, they decide to contribute $10,000 each year for the next 20 years to the Northfield Mount Hermon School gift annuity program.

The tax and financial benefits of this arrangement to the Cullens are as follows:

• Under the deferred gift arrangement, the Cullens are entitled to a charitable deduction for each annual contribution. While the deductions vary from year to year, the total charitable deduction over the 20-year period, based on current IRS mortality and interest assumptions, will be $42,407 (21% of the amount they contribute over the 20-year period).
  
  
• At the age of 65, when retirement income becomes important, the Cullens will receive $18,010 each year from their well-planned annuity. In addition, a portion of those payments will be excludable from their taxable income for their life expectancy.
  
  
• Unlike a qualified retirement plan, there are no upper or lower limits to their contributions or other restrictive requirements on the design of the plan.

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