An annuity is an arrangement where you transfer a certain lump sum to an annuity issuer (usually a life insurance company) in exchange for fixed, guaranteed payments during your life and/or during the life of another person, or for a term of years. Because part of the annuity payments consist of a return of capital, depending on your age, the annuity payments may be partly or fully tax free.

You can use annuities to make a gift to the registered charity of your choice in several ways, including:

Gift Plus Annuity

Through a Gift Plus Annuity arrangement, you purchase a commercial annuity that pays a specified annuity amount to you, for life or for a specified term, and use the excess funds to make a current gift to the registered charity of your choice. Through a Gift Plus Annuity arrangement, you receive guaranteed monthly annuity payments, for life or for your specified term.

The charity will issue a tax receipt for the amount of the current gift you make to the charity. In addition to the tax receipt, by choosing a Gift Plus Annuity, you can also increase your non-taxable income, as, depending on your age, a large portion of your annuity payments may be tax-free.

Charitable Insured Annuity

Through a Charitable Insured Annuity arrangement, you purchase a commercial annuity from a life insurance company and then use part of the monthly annuity payments to pay the premiums on a life insurance policy that has the registered charity of your choice as the owner and beneficiary. On your death, the charity receives the proceeds of the life insurance policy.

With this type of arrangement, you receive income from the annuity (often enhanced as compared to what you would receive from other investment vehicles) as well as tax credits for the insurance premiums you pay. You can use the tax credits to offset tax payable on your income and thus have a higher after-tax income. It is even possible to then use the increased income to fund premiums on an additional life insurance policy that names your heirs as beneficiaries. In this way, both your heirs and the charity will receive a benefit in the future.

Charity Self Insured Annuity

A gift to charity using an annuity can also be made when you make a contribution of cash or other property to certain registered charities that are permitted to issue annuities, in exchange for a guaranteed lifetime income (or for a specified term). This type of annuity is an agreement or contract between you and the charity. Upon death, the charity would use the remainder of the original contribution for its charitable purposes.