The gift that gives back: Nonprofits tout gift annuities' safe returns
By Adam Geller The Associated Press, Seattle Times June 25, 2001
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The pitch sounds doubly appealing in these days of lurching stock prices and languishing interest rates: Do good for the planet, do well for yourself.
"With Audubon You Have a Safe Refuge Even in this Economy," the Audubon Society said in a recent New York newspaper ad seeking donors for its gift-annuity program. "Earn secure income while saving birds, wildlife, habitat ... AND taxes!"
A growing number of charities have recently adopted a message similar to Audubon's. They are appealing to potential donors by marketing annuities as a shelter from the soft economy, volatile stock market and meager interest rates on bank deposits.
Gift annuities have long appealed to older Americans interested in philanthropy, but now some nonprofits, worried that a prolonged downturn in the economy could hurt donations, are marketing to potential donors' self-interest.
"Charities are emphasizing the gift annuity as an alternative to market risk, and also as a vehicle to consider when interest rates are declining," said Frank Minton, president of Seattle-based Planned Giving Services, a leading consultant to charitable organizations.
In a gift annuity, a donor gives cash or stock to a charity in return for lifetime fixed payments that are based on age - the older the donor, the larger the payment. A portion of those payments is tax-free, and the donor also gets a tax deduction for part of the value of the charitable contribution.
Even after making the payments, charities are typically left with at least half of the original donation amount. Many charities net close to 100 percent of the contributions.
The popularity of gift annuities has increased considerably in recent years, embraced by organizations ranging from The Nature Conservancy to the Mayo Clinic to major universities like Harvard and Stanford.
Minton said he has recently worked with eight charities to develop "target letters" to send to potential gift-annuity donors. Each of those letters cites the soft economy.
Donors are being told that "if they're concerned about the volatility of the market and the declining interest rates, here is an instrument where they can be assured of guaranteed payments," said Minton, who declined to identify his clients.
The message spreads ...
That theme was embraced by officials at Brenau University in Gainesville, Ga., when they announced the creation of a gift-annuity program in December. A similar note was sounded in a recent newsletter by Hillcrest Family Services, a social-services agency based in Dubuque, Iowa.
"The stock market is down, interest rates are low, and many people are considering making more conservative investments for the coming year," Hillcrest wrote.
"If you are looking to make a donation to Hillcrest this year, it might be time to consider a charitable gift annuity."
Such efforts target people who want to support a charity's work but whose need for retirement income limits their ability to make an outright gift.
"(Gift annuities) compare very favorably with other kinds of conservative investments, and with some not-so-conservative investments now," said Wayne Mones, vice president for planned giving at Audubon, whose ad ran in The New York Times.
"We know that there are many people who care deeply about conservation, so we thought that this was a good time to place an ad that specifically addressed what people might be concerned about right now," he said.
Rates set to change
The solicitations come just as gift-annuity rates are set to be lowered by the American Council on Gift Annuities - which recommends payout rates used by most charities - because of decreasing interest rates on Treasury bonds and other fixed-income investments held in charity portfolios.
For a single donor who establishes a gift annuity at age 75, for example, the July 1 change will cut the payment rate from 8.2 percent to 7.9 percent.
At that new rate, a donor who starts an annuity with a $10,000 gift would receive $790 annually from the charity, customarily in quarterly installments. More than 60 percent of the payment would be tax-free.
In addition, the donor is entitled to an immediate tax deduction of about $4,158, based on IRS life-expectancy tables that project the total payment the donors will likely receive from the charity over their lifetime.
Fund-raisers for several charities said their marketing efforts are careful not to portray gift annuities as investment products, since payment rates are usually lower than those offered on annuities sold by insurance companies. Charities say they make clear to donors their first motivation in setting up a gift annuity should be philanthropy.
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