Wednesday, May 13, 2009
The Wall Street Journal reports the many donors who created charitable gift annuities based in part on the ability to receive regular payments from the annuities during their retirement are receiving a rude shock as a result of the recent economic downturn. As charitable giving planners are well aware, a charitable gift annuity gives the donor a current charitable contribution deduction equal to the present value of the expected remainder value of the annuity, which will be transferred to one or more charities. Before that transfer occurs, however, the donor or her designee(s) receives regular payments during the remainder of her life. In theory, the charity is required to ensure these payments occur regardless of the vagaries of the economy. In reality, however, the payments can be interrupted by various economic-related events. For example, as the article highlights, donors who set up charitable gift annuities with the National Heritage Foundation found their payments stopped when that charity declared bankruptcy last January (as detailed in its press release). Also, even when a charity "reinsures" its charitable gift annuities with a insurance company to protect donors, the strength of that reinsurance depends on the financial status of that insurance company, which in turn may be vulnerable to economic downturns.