Charitable Gift Annuity Disclosure Statement
2007 - 2008
The ELCA Foundation receives and administers gifts to the Evangelical Lutheran Church in America in the form of charitable gift annuities. The donor makes an irrevocable gift to the ELCA ministry of choice and in return receives an agreement that the Church will pay an annuity for one or two lifetimes to income beneficiaries named by the donor. The ELCA Foundation does not accept real estate gifts to fund a charitable gift annuity. Qualified charitable gift annuities are not insurance under the laws of any state, are not subject to regulation by any state insurance departments and are not protected by any state guaranty associations or funds.
Gift Annuity Rates
The ELCA Foundation uses the rate table of the American Council on Gift Annuities because it believes that those suggested rates protect the interests of both the income beneficiaries and the ultimate charitable beneficiaries. Long years of experience by the ELCA Foundation and its predecessors have shown this to be true. In addition, some states suggest that the rates of the American Council be used. The rate table is actuarially based, estimating the years of life expectancy of the income beneficiaries.
The Monthly AFR Rate Each month the U.S. Internal Revenue Service publishes its Applicable Federal Rate, the AFR. This rate, along with the gift annuity rate, is used to calculate the charitable deduction for tax purposes and the amount of tax free income that annuitants will receive. A higher AFR rate results in a higher charitable deduction and a lower percentage of tax free income. A lower AFR rate results in a lower charitable deduction and a higher percentage of tax free income. The AFR for the current or either of the previous two months may be chosen for each gift.
Gift Annuity Payments The annuity payment to the income beneficiaries is set at the time of the agreement. The annuity income is fixed and will not change; it will neither increase nor decrease. The annuity is backed by the "full faith and credit" of the Evangelical Lutheran Church in America.
Payment Schedule
Annuity payments are usually on a quarterly basis. One may also request monthly, semi-annual or annual payments. Greater frequency of payments results in a slightly lower charitable deduction and slightly lower tax-free income. The minimum payment for any frequency must be $100.
Minimum Annuity Age Current policy requires income beneficiaries to be 35 years or older at the time the annuity agreement is established. Exceptions to this policy are made in certain estate plan situations. The Foundation's executive director is authorized to make exceptions.
Deferred Payment Charitable Gift Annuity Deferred payment charitable gift annuities are written for those who want to make a gift commitment now, want the charitable contribution deduction now for current taxes, but desire to postpone the income to a future date. The longer the deferral, the greater the deduction and the greater the annuity received.
Gift Annuity Reserves The entire gift amount is added to the ELCA annuity reserves, which are structured as a single pooled fund. The legal reserves are invested in U.S. Treasury backed securities. None of the gift amount is taken into the Church's budget for spending. The earned income from the entire gift amount is available for annuity income. The pooled fund is managed by professional investment managers. All other functions, such as accounting and annuity payments, are the responsibility of the Foundation staff. Annuities in California are segregated in a special reserve in compliance with that state's annuity regulations.
Annuity Termination The annuity agreement ceases with the last payment prior to the death of the last income beneficiary. There is no partial payment amount left for payments to the estate or others. If any payments are made after the death of an annuitant, such payment must be returned to The Foundation for distribution to the donor's designated charitable beneficiary.
Charitable Beneficiaries The donor may designate any ministry of the Evangelical Lutheran Church in America (churchwide, synodical, local and/or congregational) as the charitable remainder beneficiary. At least 70% of the remainder must be designated for ELCA related ministries; no more than 30% to non-ELCA charities. All charitable beneficiaries must be IRS approved as charities (501(c)(3) agencies and institutions).
Tax Deductions and Annual Tax Reports A gift and tax letter will be prepared by the ELCA Foundation at the time of the gift. Donors cannot deduct an unlimited amount of charitable contributions for income tax purposes in any one year. There are limitations based on the donor's adjusted gross income. The donor, however, must use as much of the tax deduction as possible in the current year of taxation. The tax deduction may NOT be averaged to spread its benefit over several years.
Total charitable contributions are deductible up to 50% of a donor's adjusted gross income. Amounts exceeding 50% may be carried over for deduction in the succeeding five years. These carryovers are subject to the same current year taxation limitation.
Gifts of appreciated assets are deductible to the extent of 30% of a donor's adjusted gross income. Amounts exceeding 30% may be carried over for deduction in the succeeding five years. These carryovers are subject to the same current year taxation limitation, including the total contribution limitation of 50% of a donor's adjusted gross income.
At the end of each year the income beneficiaries will receive a 1099-R form for tax purposes. The 1099 will indicate what portion of the annual income is taxable as ordinary income and what portion is non-taxable. The non-taxable portion is considered a return of principal and extends through the years of life expectancy. Should the annuitant die before actuarial projection, the remaining return-of-principal portion is allowed as a further deduction for the annuitant's final income tax return.
Gifting Appreciated Securities
When appreciated securities are used to fund a gift annuity some of the annual income will be capital gain income. The percentage of the gift that is considered a charitable contribution deduction bypasses that same percentage of capital gain. The remaining amount of capital gain is prorated over the years of life expectancy. These categories of income do not influence the amount of annuity received - that annuity amount is fixed for lifetime at the time of the gift.
Securities Cost Basis
When securities are used to fund a gift annuity the donor must provide the cost basis of the securities given as a gift to fund the annuity. That cost basis is a part of the formula for determining the categories of income to the annuitants.
Management Fees The current administrative-management fee is ½ of 1% of the assets of the pooled fund per year. This fee is charged against the principal of the pool of funds. The fee is not deducted from the annuitants' income.
Commissions
No commissions are paid to ELCA Foundation representatives and compensation is not based on the number or value of gifts.
ELCA Gift Annuity History
The ELCA Foundation was established in 1988 upon the merger of the Lutheran Church in America, the American Lutheran Church and the Association of Evangelical Lutheran Churches to form the Evangelical Lutheran Church in America. As of January 1, 2007 the ELCA Foundation had 5,302 active annuity agreements: 3,330 for one-life and 1,972 for two-life income beneficiaries. Of these agreements 169 were written by predecessor church bodies' foundations and 5,133 have been written by the ELCA Foundation.
The total gift value of the 5,302 gift annuity agreements is $124,254,310 an average of $23,435 for each agreement. The charitable gift annuity reserve totaled $106,411,052 on January 1, 2007, including substantial unassigned funds. The largest agreement is for $1.5 million and the smallest is for $100. Current policy calls for a minimum gift of $1,000 ($2,500 in California).
Disclaimer Charitable gift annuities and their invested assets are exempt from the registration requirements of the federal securities laws, pursuant to the Philanthropy Protection Act of 1995 which exempts collective investment funds and similar funds maintained by charitable organizations.
Prospective donors to an irrevocable charitable gift annuity are advised to consult with their attorney or tax advisor. The above information is not intended as legal or tax advice.
The Evangelical Lutheran Church in America, via the ELCA Foundation, currently does not offer charitable gift annuities to any persons in the states of Alabama, Alaska, Arkansas, Connecticut, Georgia, Hawaii, Iowa, Mississippi, Missouri, Nevada, New Mexico, Oklahoma, Oregon, Tennessee, and Washington.