Council Recommends Lower Payout Rate for Younger Donors of Gift Annuities

Beginning next month, charities should slightly lower the payout rate for younger donors of gift annuities,

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New Gift-Annuity Rates

according to a national organization of planned-giving fund raisers.

The American Council on Gift Annuities has recommended that charities trim the rate they pay donors below age 50 by about half a percentage point, starting July 1. The decrease declines gradually for donors 51 to 60 years old; for those 61 or older — who constitute the vast majority of such donors — the payout rate remains unchanged.

“Probably 95 per cent or more of gift annuities will be unaffected” by the recommended changes, said Frank Minton, a planned-giving consultant in Seattle who chairs the council committee that calculated the new rates. “It’s rare for gift annuities to be written for a person below age 60.”

Gift annuities allow donors to contribute cash or other assets to a charity in exchange for fixed annual payments. The percentage of the gift that a charity pays varies with the donor’s age: Younger donors receive smaller payments because they presumably will live longer than older ones.

Underlying the payout rates is the assumption that a charity will end up dividing the gift’s value equally with the donor. But charities may receive much more or less than 50 per cent, depending upon the donor’s actual life span.

Most charities use the council’s recommended rates, although they are not required to do so.

“For all practical purposes, this is a very minor adjustment done for several technical reasons,” Mr. Minton said.

New mortality tables released this year by the Internal Revenue Service reflect somewhat longer life expectancies among Americans, for example. The council’s existing payout rates for some younger people may not meet the service’s requirement that a donor’s charitable deductions exceed 10 per cent of the amount of his or her gift, when the applicable federal rate drops below a certain level — as it did last winter.

What’s more, Mr. Minton said, the adjustment will insure that gift-annuity rates continue to stay lower than commercial insurance rates. Gift-annuity rates are closest to commercial rates among younger people, and gradually diverge for older people receiving annuities.

For more information about the rates, contact the American Council on Gift Annuities, 233 McCrea Street, Suite 400, Indianapolis 46224-1030; (317) 269-6271; or Frank Minton, President, Planned Giving Services, 3147 Fairview Avenue East, Suite 200, Seattle 98102; (206) 329-8144.