A variable annuity is a tax-deferred investment structure sold by insurance companies to consumers looking for long-term growth to later supplement retirement income. You can donate your variable annuity to a charity to reduce the size of your taxable estate or reduce assets for federal assistance programs such as Medicaid. Through the donation, you can still maintain an income source, while getting a large tax deduction for the value of the donation. Upon your death, the charity receives the cash value of the annuity.
Read the annuity contract to see if you are allowed to donate the annuity. Most annuity companies allow the owner to gift or donate the annuity by changing the owner.
Request an "Ownership Change Form" if you are allowed to donate the annuity directly. If you are not allowed to donate it directly, request a "Distribution Form."
Complete the Ownership Change Form or Distribution Form as required for your particular annuity. With the Owner Change Form, fill in the new owner information with the charity's name, address and tax identification number. If you are required to distribute the annuity, complete the Distribution Form for a 100 percent distribution.
Submit the signed forms to the annuity company. The charity will receive a new annuity contract if you changed the owner. A check is sent if you completed distribution.
Take the check to the charity. Request an application for a charitable gift annuity and fill it out for the value of the check received from your annuity. The charity will buy an annuity that pays you a monthly, quarterly or annual income for the rest of your life and use the rest of the funds for its charitable causes.
Tips
If you do not need a tax deduction during your lifetime, you can name the charity as your beneficiary. You will continue to control the variable annuity and the charity will receive all proceeds upon your death.
When the charity becomes the annuity owner, it often names itself as the beneficiary.
Warnings
Speak with a tax adviser to determine how each different donation affects your personal tax return.
References
- U.S. Securities and Exchange Commission. "Variable Annuities: What You Should Know." Accessed July 10, 2020.
- Internal Revenue Service. "Publication 575 (2019), Pension and Annuity Income." Accessed July 10, 2020.
- Internal Revenue Service. "Section 1035." Accessed July 10, 2020.
- FINRA. "Variable Annuities." Accessed July 10, 2020.
Writer Bio
With more than 15 years of professional writing experience, Kimberlee finds it fun to take technical mumbo-jumbo and make it fun! Her first career was in financial services and insurance.