Downturn Adds Risk to Charitable Annuities

Charitable gift annuities, an increasingly popular financial tool for investors seeking a reliable stream of retirement income, are getting riskier as some strapped nonprofit groups struggle to make the payouts, reports The Wall Street Journal.

The annuities allow donors to make a tax-deductible, lump-sum contribution, in exchange for which they receive regular payments. For donors older than 65, those yields are now between 5.3 and 9.5 percent. The charity keeps whatever remains of the initial gift when the donor dies.

But with the recession, some charities are having trouble meeting their annuity payments and are turning to insurance companies to back up their obligations. Should the recipient go bankrupt, the payments can stop entirely, as happened when the National Heritage Foundation, in Falls Church, Va., filed for protection from creditors in January and ceased annuity payouts amounting to $2-million a year.

See The Chronicle’s article about the bankruptcy at the National Heritage Foundation.

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