10 Charitable Gift Annuity Questions Advisors Ask

As a professional advisor, do you ever feel the pressure to know every financial option available to your clients? You're not alone. Even the most seasoned advisors encounter questions, especially when it comes to tools they don’t use every day. One such tool is the charitable gift annuity, often described as “a simple gift agreement.” But unless you regularly help clients establish one, chances are you’ve wondered about some of the most common questions surrounding this popular philanthropic vehicle.

1. What is the difference between a charitable gift annuity and a charitable remainder trust?

   A charitable gift annuity is an agreement between a donor(s) and a charity in which the donor(s) makes a gift and receives fixed lifetime payments, with the remainder going to the charity. In contrast, a charitable remainder trust is a more complex, customizable legal agreement that allows donors to contribute assets, receive either fixed or variable income for a term or lifetime, and designate one or more charities to receive the remainder. Charitable gift annuities are easier to set up and managed by the charity, while charitable remainder trusts offer greater flexibility, potential for investment control, are better suited for larger or more complex gifts, and may or may not involve the charity in the management of the trust’s assets/serving as the trustee.

2. How many people can a charitable gift annuity make payments to?

   A charitable gift annuity can make payments to one or two individuals either concurrently or successively.

3. Which assets can be used to fund a charitable gift annuity?

   A charitable gift annuity can be funded using a variety of assets, with cash, qualified charitable distributions from an IRA and appreciated securities being the most common. Donors often use qualified charitable distributions and publicly traded stock or mutual fund shares, to take advantage of additional tax benefits. Other assets such as real estate or closely held stock may be accepted, although these are typically subject to additional review by the charitable organization where the charitable gift annuity is being funded.

4. How many charitable gift annuities can be funded with a Qualified Charitable Distribution from an IRA?

   There is no limit to the number of charitable gift annuities that can be funded with a qualified charitable distribution(s) from an IRA, but there is a limit to the total value (up to $54,000 in 2025 and $55,000 in 2026) that can be transferred to fund a charitable gift annuity(ies). In addition, each taxpayer can only fund a charitable gift annuity(ies) with a qualified charitable distribution in one calendar tax year in their lifetime. For example, in 2025 a donor can fund CGAs at four different charities, in varying amounts, up to a total of $54,000, but the donor can not fund two CGAs in 2025 and the other two in 2026.

5. Can a charitable gift annuity be funded to make payments to a person that is not the donor?

   Yes, a charitable gift annuity can be structured to make payments to someone other than the donor. While many donors choose to receive the annuity payments themselves, it is also common to designate a spouse, family member, or friend as the annuitant. The donor retains the ability to fund the annuity and claim the associated charitable tax deduction. However, the age and life expectancy of the designated annuitant will influence the payout rate and the value of the charitable deduction.

6. How can a client receive a higher payout rate from a charitable gift annuity?

   A donor can receive a higher payout rate from a charitable gift annuity by considering several strategic options. Opting for a deferred gift annuity, where payments begin at a future date (at least one year and one day after funding), can result in a higher rate since the charity has more time to invest the funds. Two-life charitable gift annuities with a younger second beneficiary may lower the rate, so choosing a single-life annuity can increase the payout rate as well.

7. How are charitable gift annuity payments taxed?

   Charitable gift annuity payments are typically taxed as a combination of return of principal, ordinary income, and sometimes capital gains. When a donor funds an annuity with cash, a portion of each payment is considered a tax-free return of principal, while the rest is taxed as ordinary income. If appreciated securities are used to fund the annuity, part of the payment may also be taxed as capital gains. The exact breakdown is determined at the time the annuity is established and is influenced by the donor’s age, the funding asset’s cost basis, the amount contributed, and the payout rate. The issuing charity can provide a schedule that outlines the taxable and non-taxable portions of each payment, helping the donor understand their annual tax obligations. The charity also issues the annuitant a 1099 annually for tax reporting purposes.

8. Can a charitable gift annuity be set up through a client’s estate plan?

   Yes, a charitable gift annuity can be established through a client’s estate plan by including specific instructions in their will or revocable living trust. This typically involves directing a portion of the estate to a charitable organization with the restriction that it be used to fund a gift annuity for a designated beneficiary, such as a spouse or other loved one. While the donor does not receive income or tax benefits during their lifetime, this approach allows them to support a charitable cause while also providing future lifetime income to someone they care about. It’s important to coordinate with the chosen charity in advance to ensure they accept testamentary charitable gift annuities and to clarify the terms of the annuity.

9. Can I manage my client’s charitable gift annuity investment?

   No, a donor’s personal professional advisor cannot directly manage the investment of a charitable gift annuity funded by their client because the assets used to fund the charitable gift annuity become the legal property of the issuing charitable organization. Once the gift is made, the charity assumes responsibility for managing the funds and making the annuity payments according to the agreed terms. However, a personal advisor can still play a valuable role by helping the client evaluate whether a charitable gift annuity aligns with their overall financial and philanthropic goals and ensuring the arrangement complements the client’s estate and tax planning strategies.

10. Will I receive a commission for helping my client fund a charitable gift annuity?

    Because a charitable gift annuity is a philanthropic vehicle and not a commercial investment product, they do not involve commissions or referral fees.

Charitable gift annuities continue to resonate with donors nationwide, offering a unique blend of generosity and financial strategy. As you guide clients through their long-term planning, these instruments can serve as a meaningful bridge between personal values and financial goals. For advisors seeking clarity or collaboration, charitable organizations with gift annuity programs stand ready to partner with you—ensuring your clients receive thoughtful, informed guidance every step of the way.

About the Author

Pamela Leonard, CAP®, CFRE, CGPP
National Executive Lead, Charitable Estate Planning
American Heart Association

Pamela Leonard is a distinguished leader in nonprofit management and charitable estate planning, with dual degrees in Management of Nonprofit Organizations and Communications from Salem University. As a Certified Fund Raising Executive, Certified Gift Planning Professional and a Chartered Advisor in Philanthropy, she has continuously demonstrated her expertise in fundraising and estate planning. Her 18-year tenure at the American Heart Association, including over a decade as National Executive Lead for Charitable Estate Planning, highlights her expertise in deferred giving, asset management and leadership. Pamela’s dedication and impact have solidified her reputation as a visionary in philanthropy.