Annuities are not the simplest piece of an estate plan but if established prudently they are worth considering for many people.
A gift annuity permits a person to donate to charity, receive a tax benefit for the donation and also receive an annual return for themselves. It is a type of investment suitable for a retiree who wants to donate to charity while maintaining constant cash flow.
Catholic Missions In Canada has been offering self-insured charitable gift annuities since 1952. Donors invest in an annuity and then receive payments — part capital, part interest — for the rest of their lives. The charity receives a portion of the capital as a donation. If the donor dies before the fund is exhausted, the remainder of the capital is donated to the charity.
“We have a very healthy, strong program,” said Winnie Quinn, manager of gift planning at Catholic Missions. “Donors trust when we say we self-insure because we’ve been doing it for so long and we have quite a large fund built up.”
Quinn says there are three main financial benefits of purchasing a charitable gift annuity with Catholic Missions: a higher rate of income compared to other investments, tax-free income and a one-time charitable receipt for 20 to 33 per cent of their investment. The bonus, she says, is that it’s stress free, direct deposit and at the end of their lives, donors help keep the Catholic faith alive in Canada.
Some annuitants, she says, have over 30 annuities with Catholic Missions because they never have to worry about re-investing funds, especially if illnesses like dementia set in. The minimum investment to purchase a self-insured charitable gift annuity with Catholic Missions is $10,000. The minimum age is 65, but the average age is 80. The older the donor is, the higher their rate of return, with the maximum rate at 10 per cent.
“Our annuitants become almost like family members, they really do. They’re very connected to us,” said Quinn. That’s why some place Catholic Missions in their estates and, if they don’t need the regular payments from the annuity, send it to the charity.
Not all Catholic organizations and charities offer self-insured annuities. So if a parishioner in Toronto, for example, wanted his or her parish to benefit from a purchase of an annuity, he or she would contact the Archdiocese of Toronto to learn how to purchase a re-insured charitable gift annuity through an insurance company.
“When people buy these things they have to decide what it is they want to achieve once they get the payment,” said Quentin Schesnuik, manager of planned giving and gifts for the archdiocese.
With a re-insured annuity, the client purchases the annuity through the insurance company. A certain percentage of that annuity goes to the Church and the donor receives a one-time tax receipt from the archdiocese. Clients may also donate the regular annuity payments to the parish, and then the archdiocese would issue additional tax receipts. When the client dies, the remainder of capital goes to the insurance company.
“Someone should purchase an annuity if they’re planning to make a charitable donation to a charity when they die,” said Gerson D’souza, investment advisor with TD Wealth. “They purchase an annuity because they want to receive income during their lifetime, but they want to make sure that the full amount of their investment goes to the charity when they die. They leave it as a legacy to the charity.”
D’souza says the insurance company offers regular annuities and insured ones. An insured annuity lets a client purchase a death benefit so they can assign a beneficiary — a person or an organization such as a parish — to receive funds equal to 100 per cent of their capital investment at death. The client can also assign the insured annuity to the charity as an asset to be borrowed against, while the regular payments are paid to the client. Clients can also purchase a guarantee that gives the beneficiary regular payments for a set time period after that client dies. The death benefit and the guarantee decrease the rate of return.
Annuities can be technical, so it’s important to contact a professional advisor.