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FUNDAMENTALS OF PLANNED GIVING§ 5.6 CHARITABLE GIFT ANNUITIESAnother planned giving vehicle is the charitable gift annuity. 23 Unlike the charitableremainder trust and the pooled income fund, the charitable gift annuity isnot based upon use of a split-interest trust. Rather, the annuity is reflected in anagreement between the donor and donee, where the donor agrees to make a giftand the donee agrees, in return, to provide the donor (and/or someone else)with an annuity.The donor, in the process of creating a charitable gift annuity, is in factengaging in two transactions, albeit with one payment: the purchase of an annuityand the making of a charitable gift. It is the latter that gives rise to the charitablededuction. One sum is transferred; the amount in excess of that necessary topurchase the annuity is the charitable gift portion. It is because of the dualnature of the transaction that the charitable gift annuity transfer constitutes abargain sale. 24As with the annuity paid out of a charitable remainder annuity trust, theannuity resulting from the creation of a charitable gift annuity arrangement is afixed amount paid at regular intervals. The amount paid depends on the age ofthe beneficiary, determined at the time the contribution is made. Because of rulesin the area of unrelated-debt financing, however, the period of a charitable giftannuity is properly for one or two lives, rather than for a term of years.A portion of the annuity paid is tax-free, being a return of capital. Whenappreciated securities are given, there will be capital gain on the appreciationthat is attributable to the value of the annuity. If the donor is the annuitant(receiver of the annuity), the capital gain can be reported ratably over the individual’slife expectancy. The tax savings occasioned by the charitable contributiondeduction may, however, shelter from taxation the capital gain resultingfrom the creation of a charitable gift annuity.Because the arrangement is by contract between donor and donee, all of theassets of the charitable organization are on the line for ongoing payment of theannuities. (By contrast, with most planned giving techniques the resources forpayment of income are confined to those in a split-interest trust.) That is why afew states impose a requirement that charities establish a reserve for the paymentof gift annuities and why many charitable organizations are reluctant toembark upon a gift annuity program. Charitable organizations that are reluctantto commit to the ongoing payment of annuities can, however, eliminate the riskby reinsuring them.§ 5.7 CHARITABLE LEAD TRUSTSThe foregoing forms of planned giving have this common element: the donortransfers to a charitable organization the remainder interest in the property, withone or more noncharitable beneficiaries retaining the income interest. The reversemay occur, however, and that is the essence of the charitable lead trust. 2523 Gifts by means of a charitable gift annuity are the subject of Chapter 14.24 See § 9.19.25 Gifts by means of the charitable lead trust are the subject of Chapter 16. 162