May 29, 2003 | Read Time: 2 minutes
Charities should trim the rates they pay donors who set up gift annuities, according to a national
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planned-giving organization.
The American Council on Gift Annuities has recommended that, starting in July, charities reduce rates for donors 48 or older by as much as 0.3 percentage points. For donors younger than 48, the council said its recommended payout rates — already reduced recently — remain unchanged.
Gift annuities allow donors to contribute cash or other assets to a charity in exchange for fixed annual payments. The percentage of a gift that a charity pays to a donor varies with the donor’s age. Younger donors receive smaller payments because they are expected to live longer than older ones.
Most charities use the council’s recommended rates, although they are not required to do so. The assumption behind the council’s calculations is that charities will receive half the value of the gift.
The rate decrease is the second in six months — the first time that has ever occurred, says Frank Minton, chairman of the committee that sets the council’s rates. Last fall, the organization made an “interim adjustment,” reducing rates for donors of all ages by an average of 0.5 percentage points.
The latest recommended rate adjustment, which was made at the council’s regularly scheduled spring meeting, occurred for several reasons:
- With interest rates remaining low and the average yield for 10-year Treasury notes declining, the council recognized that charities are not making as much money on the investment of gift-annuity assets as they had been recently.
- The IRS discount rate remains at its lowest level ever, 3.6 percent. The lower the discount rate, the smaller the deduction a donor can take on a gift annuity, Mr. Minton said.
- The rates that commercial insurance companies give to annuitants have decreased by about 10 percent in the past year, Mr. Minton says. The new decrease in recommended gift-annuity rates assures the council that its rates will have declined by about 10 percent during the same period.
| Age | Old rate | New rate | Age | Old rate | New rate | Age | Old rate | New rate |
| 1 or under | 3.7% | 3.7% | 41 | 4.8% | 4.8% | 66 | 6.3% | 6.1% |
| 2-5 | 3.8% | 3.8% | 42 | 4.8% | 4.8% | 67 | 6.4% | 6.2% |
| 6-12 | 3.9% | 3.9% | 43 | 4.9% | 4.9% | 68 | 6.5% | 6.3% |
| 13-19 | 4.0% | 4.0% | 44 | 5.0% | 5.0% | 69 | 6.6% | 6.4% |
| 20 | 4.0% | 4.0% | 45 | 5.0% | 5.0% | 70 | 6.7% | 6.5% |
| 21 | 4.1% | 4.1% | 46 | 5.1% | 5.1% | 71 | 6.8% | 6.6% |
| 22 | 4.1% | 4.1% | 47 | 5.2% | 5.2% | 72 | 6.9% | 6.7% |
| 23 | 4.1% | 4.1% | 48 | 5.3% | 5.2% | 73 | 7.0% | 6.8% |
| 24 | 4.1% | 4.1% | 49 | 5.4% | 5.3% | 74 | 7.2% | 6.9% |
| 25 | 4.1% | 4.1% | 50 | 5.5% | 5.3% | 75 | 7.3% | 7.1% |
| 26 | 4.2% | 4.2% | 51 | 5.5% | 5.4% | 76 | 7.5% | 7.2% |
| 27 | 4.2% | 4.2% | 52 | 5.6% | 5.4% | 77 | 7.6% | 7.4% |
| 28 | 4.2% | 4.2% | 53 | 5.7% | 5.5% | 78 | 7.8% | 7.6% |
| 29 | 4.3% | 4.3% | 54 | 5.7% | 5.5% | 79 | 8.0% | 7.8% |
| 30 | 4.3% | 4.3% | 55 | 5.8% | 5.5% | 80 | 8.3% | 8.0% |
| 31 | 4.3% | 4.3% | 56 | 5.8% | 5.6% | 81 | 8.5% | 8.3% |
| 32 | 4.4% | 4.4% | 57 | 5.8% | 5.6% | 82 | 8.8% | 8.5% |
| 33 | 4.4% | 4.4% | 58 | 5.9% | 5.7% | 83 | 9.1% | 8.8% |
| 34 | 4.4% | 4.4% | 59 | 5.9% | 5.7% | 84 | 9.4% | 9.2% |
| 35 | 4.5% | 4.5% | 60 | 6.0% | 5.7% | 85 | 9.7% | 9.5% |
| 36 | 4.5% | 4.5% | 61 | 6.0% | 5.8% | 86 | 10.1% | 9.9% |
| 37 | 4.6% | 4.6% | 62 | 6.1% | 5.9% | 87 | 10.4% | 10.2% |
| 38 | 4.6% | 4.6% | 63 | 6.1% | 5.9% | 88 | 10.8% | 10.6% |
| 39 | 4.7% | 4.7% | 64 | 6.2% | 6.0% | 89 | 11.2% | 11.0% |
| 40 | 4.7% | 4.7% | 65 | 6.3% | 6.0% | 90 or over | 11.5% | 11.3% |
| SOURCE: American Council on Gift Annuities | ||||||||
