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The CMC Charitable Gift Annuity

A charitable gift annuity (CGA) is a simple contractual agreement between you and CMC. In exchange for your irrevocable gift of cash or securities, CMC agrees to pay a fixed sum to one or two people, each year, for life. The payments are a legal obligation of the College and are guaranteed by the general resources of CMC. The older you are when you create the gift annuity the higher your gift annuity rate.

How You Benefit

Lifetime Income With payments for life, you cannot outlive your annuity.
Meaningful Gift You will enjoy the satisfaction derived by making a gift that will help to ensure that the best of CMC endures for generations.
Eliminate Investment Risk Fixed payments eliminate the impact of market volatility.
Charitable Deduction Your gift qualifies for a charitable income tax deduction equal to a portion of your gift amount.
Attractive Rates CMC annuity rates are among the highest in the country.
Tax-Advantaged Payments A portion of each payment will be tax-free, capital gain (if funded with appreciated securities), and ordinary income.
Secure Payments Your annuity payments are guaranteed by all of the assets of Claremont McKenna College; now over $600 million. The College has earned an Aa2 (double A-2) credit rating from Moody Investor Services.

Appreciated Securities and Gift Annuities A key benefit of the CGA is the ability to fund it with appreciated securities. As a result, your annuity payment is based on the full-fair market value of the stock. An insurance company needs you to sell the stock, pay the capital gain tax, and use the net after-tax sale proceeds to buy the annuity.

Case Study 1: Gift of Cash

Mrs. Thomas, age 73, has a significant amount of cash sitting in CDs where they currently earn less than 1%. She is a believer in the value of higher education and, by donating $100,000 to fund a gift annuity, she is able to support something she believes in strongly and significantly increase her retirement income.

At her age, Mrs. Thomas qualifies for a gift annuity rate of 8.1566% with CMC, and will receive lifetime annual payments of $8,156.60 (8.1566%). This is a large boost to her retirement income. Furthermore, $6,476 of her annual payment will be tax-free for 13.9 years. Plus, she is entitled to a charitable income tax deduction of $10,001. Upon her death, the remaining funds will be used to establish an endowed scholarship in her name.

Case Study 2: Gift of Appreciated Stock

Mr. Billings invested $175,000 in a portfolio of stock that is now valued at $450,000. The stock currently yields about 2.5% in dividends. Mr. Billings would like to capture his gain and increase his income, preferably without paying capital gain tax.

At age 77, Mr. Billings qualifies for an annuity rate of 9.3%, over 3 times his dividend yield. He elects to fund a gift annuity with securities valued at $250,000. Since you are permitted to choose stocks that have the most appreciation to fund the annuity, he gifts stock with a cost basis of $50,000, while the $200,000 in stock he retains has a cost basis of $125,000.

The gift annuity payment, based on the full fair market value of the securities, will pay Mr. Billings $23,250 (9.3%) annually, for life. Of this amount, $3,925 would be income tax-free, $15,085 would be capital gain income, and $4,394 would be ordinary income. After 11.2 years, the entire annuity payment is taxable as ordinary income. In addition, Mr. Billings is entitled to a charitable deduction of $38,745.

Assuming a 35% combined state and federal income tax bracket, Mr. Billings could sell his remaining stock, and use the tax savings from his charitable deduction to offset all of the capital gain tax liability arising from the sale, allowing him to raise cash at no tax cost.

The CMC Gift Annuity is not available to New York residents.

Go to: CMC Gift Annuity Rates

The information in this Web site is not intended as legal advice. For legal advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income tax include federal taxes only. Individual state taxes and/or state law may impact your results.

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