Since Eastern Mennonite Missions wrote its first gift annuity in 1917, gift annuities have been one of the most popular types of planned gifts.

A gift annuity is an agreement between a donor and a charitable organization like EMM. EMM agrees with the donor that in exchange for a gift to EMM, EMM will pay a fixed flow of income (known as an annuity) to designated beneficiaries for the remainder of their lives. When all the beneficiaries have passed away, the remainder of the original gift will be available to EMM for use in its programs. Each part of the transaction offers several options.


Gift
You may fund a gift annuity with a variety of assets, including cash, stocks, bonds, mutual funds, or any other marketable security. In limited situations, you may also fund a gift annuity with real estate.

Because the agreement between you as the donor and EMM is irrevocable, you may claim a charitable deduction for a portion of the value of the gift. If you are unable to use all of the charitable deduction in the year of the gift, you may carry over any unused portion for an additional five years, until you use the entire balance.

If you donate marketable securities that have increased in value, you receive an additional benefit. A portion of the increased value will be treated as a gift, thus avoiding some of the capital gains tax that you would otherwise have to pay when selling the asset. The remaining capital gain is spread out over the life of the annuity. This added benefit makes marketable securities popular assets to fund gift annuities.


Beneficiaries
You designate beneficiaries to receive the flow of income from EMM. Most often, donors name themselves as beneficiaries of gift annuities. If you are married, you and your spouse are often joint beneficiaries.

However, you may name anyone as a beneficiary, and joint beneficiaries do not need to be related to each other. If you name joint beneficiaries, the amount of the annuity will remain unchanged even after the passing of one of the beneficiaries.


Annuity
The annuity is the flow of income EMM agrees to pay to the beneficiaries. The amount of the annuity is based on the beneficiaries’ ages. EMM uses gift annuity rates suggested by the American Council on Gift Annuities. These rates are updated periodically, based on changes in economic factors. A sampling of the gift annuity rates in effect at the time of publication are shown at the end of this brochure. (As you notice on the chart, the older the beneficiaries, the higher the annuity rate.)

The reduced taxation of annuity income is another attractive feature of gift annuities. A portion of each annuity payment is considered a return of the original gift amount. This return is treated as non-taxable income to the beneficiary. At the time of the gift, EMM calculates how much of each annuity payment is return of principal. This percentage, or exclusion ratio, determines how much of each annuity payment may be reported as non-taxable income. At year end, EMM reports the taxable and non-taxable amounts of the annuity to the beneficiaries.


Remainder
Gift annuities receive special tax treatment as a result of your agreement to contribute the balance of the funds to EMM. During the life of the annuity, EMM holds the gift in a separate fund from its operating fund. EMM accounts for each gift annuity individually, and annually generates a report on the income earned and annuity payments made from each.

When the last beneficiary passes, EMM transfers the remaining balance to its operating fund to be available for mission programs. You may direct that the balance be used for our General Mission Fund, or any of our specific mission programs.


Deferred Payment Gift Annuities
Deferred payment gift annuities offer you the option to delay receipt of the annuity to an established future date. The original gift continues to grow tax free during the deferral period. The beneficiaries then receive a higher annuity in exchange for delaying receipt of the annuity payout.

Deferred payment gift annuities are used for a variety of reasons:

• You name a child or grandchild as beneficiary of the gift annuity, but want the annuity to begin when the beneficiary reaches a certain age.
• You are using a gift annuity to replace an income flow that will end at some point in the future.
• You are funding a gift annuity as part of a retirement plan.


Revocable Gift Annuities
EMM also offers a revocable gift annuity. The revocable gift annuity allows you to rescind the gift annuity agreement to cover emergencies such as accidents, sickness, or financial reverses. If you do not revoke the annuity before passing, the remainder of the original gift will be made available for EMM to use in its ministries.

Each annuity payment made to the beneficiaries is taxed as interest income. However, a portion of each payment by EMM is considered a return of principal, thus decreasing the amount to be returned should you revoke the annuity. According to IRS regulations, you may not receive a charitable deduction for funding a revocable annuity.

Revocable gift annuities provide you:
• a steady flow of income for the remainder of your life

• an opportunity to make a more significant gift to EMM with the peace of mind that the gift can be returned should an emergency occur
• an opportunity to establish a legacy of giving

Example 1
Robert Yoder is 68 years old, and his wife Ruth is 66. They recently sold their home for $150,000. They bought their home 35 years ago for $20,000. They would like to give a gift of $20,000 from the proceeds of the sale, but hesitate because they feel they may need the income from the proceeds. The Yoders decide to fund a charitable gift annuity with EMM.

In exchange for their gift of $20,000, EMM agrees to pay the Yoders 5.7 percent, or $1,140 per year, for the remainder of their lives. The Yoders are able to claim a charitable deduction of $5,200 for their gift. If the Yoders are unable to use the entire $5,200 deduction this year, any unused portion can be carried over for five years. Additionally, only $490 of the annuity payment is considered taxable income to the Yoders.

The Yoders are able to make the gift they desire while receiving the income they need.

Example 2
Samuel and Susan Miller are both 70 years old. They are considering selling some stock they own, which has a market value of $40,000. They bought the stock 15 years ago for $5,000. They would like to reinvest the proceeds from the sale for income to meet their living expenses. After paying capital gains tax of 20 percent on their gain from the sale, they would have $33,000 to reinvest.

Instead, the Millers decide to use the stock to fund a charitable gift annuity. They agree to give the stock to EMM in exchange for a flow of income for the rest of their lives. EMM agrees to pay the Millers 5.9 percent, or $2,360 per year for the remainder of their lives.

Example 3
Randy and Chris Lapp are both 50 years old and are searching for a creative way to combine their retirement planning with their calling to support pioneer mission ministries. They decide to use a series of deferred payment gift annuities through EMM to accomplish their goal.

Each year until they reach age 65, Randy and Chris will give $4,000 to EMM. In exchange, EMM agrees to make annuity payments to the Lapps when they turn 65. In all, the Lapps will make 15 annual gifts of $4,000 for a total of $60,000. Over the 15 years, they will be able to claim a $13,000 charitable deduction for their gifts. When they turn 65, EMM will begin to pay them $500 per month ($6,000 per year) for the remainder of their lives. Of this $500, $150 is considered non-taxable income.

By planning their gifts now, the Lapps are able to provide funds to supplement their retirement while also providing funds for EMM to continue its ministries.

Example 4
Tyrone and Candace Williams are grandparents for the first time. They would like to provide a gift to their grandchild that will continue the Williams’ legacy of giving. They agree to make a gift of $3,800 to EMM for a deferred payment gift annuity. In exchange, EMM agrees to make an annuity payment of $500 each year to the Williams’ grandchild. This payment will begin when their grandchild reaches age 18 and will continue for the remainder of their grandchild’s life.

This gift from the Williams will provide income to their grandchild for the remainder of his or her life, a reminder of the Williams’ legacy of giving even after they have passed away.

Example 5
Harold Wenger is 72 years old. He would like to make a contribution to EMM of $10,000, but is concerned about the cost of health care should his health deteriorate. He is considering modifying his will to make the $10,000 gift through his estate, if the funds are still available at his passing.

He decides instead to fund a $10,000 revocable gift annuity with EMM. In exchange for the gift, he will receive an annuity of 6.7 percent, or $670, for the remainder of his life. He retains the option to revoke the annuity in case of emergencies such as accident, illness, or financial reverses. As the payments are made, any payment Harold receives in excess of six percent is considered a partial return of the original gift. After each annuity payment, the amount Harold can receive back is reduced.

The following chart shows the amount that would be available to Harold should he revoke his annuity after year 1, 2, or 3.

The revocable annuity provides Harold the ability to make a gift to EMM during his lifetime, while also allowing him the security of knowing that he may get the funds back if he needs them.

Charitable gift annuities provide the opportunity to use your resources to support the ministries of EMM while reaching your financial goals.

These are just a few examples of how you can use gift annuities to further God’s kingdom and help you meet your financial goals. If you have additional questions about charitable gift annuities, or if you would like to discuss in detail how a gift annuity may be appropriate for your situation, please feel free to contact EMM’s director of financial resources at 717 898-2251.

Other financial planning resources available from Eastern Mennonite Missions: Charitable remainder trusts; Gifts of stock; Gifts of real estate; and Gifts of retirement funds.

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Examples based on rates adopted on 5/12/03 by the American Council on Gift Annuities. Please contact Eastern Mennonite Missions’ director of financial resources for current rates. Examples are fictitious and do not refer to actual transactions.

Eastern Mennonite Missions is not engaged in rendering legal or tax advisory services. For legal or tax advice, please consult your own professional advisor.

Other ways to give

Bequests
A bequest is the simplest planned gift, given after your death through a directive in your will. It can be in the form of real estate, retirement funds, or stock.


Charitable remainder trusts
A charitable remainder trust allows you to make a contribution to EMM, with flexible options for how you want EMM to manage the trust’s assets. You may name yourself, or anyone else you choose, as the beneficiary. more >>


Life insurance and retirement plans
These assets offer various opportunities for benefiting your family and EMM’s family. The rules regarding gifts of retirement funds continue to change. To discuss the options available, contact Don Brubaker at 717 898-2251.