Non-qualified annuities are not effective at transferring assets to future generations, since significant percentages of the money would be subject to estate and income taxes. If an annuity is given to someone other than the owner's spouse, for example, there is a gift-tax consequence, and the owner will recognize the earnings accrued as taxable income in the year of the transfer. This applies to annuity contracts issued after April 22, 1987. Contracts issued before April 23, 1987 are treated differently, with the accrued gain recognized by the donor if and when the contract is surrendered. However, spouses can transfer annuity contracts to each other without those tax effects.
A charitable gift annuity is an arrangement between a donor and a charitable organization in which the charity agrees to pay a fixed annual amount (an "annuity") to one or more individuals (the "annuitants") for life in exchange for a contribution of cash or property to the charity. Gift annuity payments may also be made to an individual other than the donor and his or her spouse. Under a charitable gift annuity agreement, the donor makes a tax-deductible charitable contribution. In general, the amount of the contribution is the difference between the fair market value of the property transferred to the charity and the value of the annuity. The value of the contribution may be claimed as an income tax deduction in the year the gift is made – up to 50 percent of the individual's federal adjusted gross income for a gift of cash, or up to 30 percent, if he or she transfers securities held for more than one year.
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