Using Real Estate to Fund Immediate Gift Annuities – A Creative Twist

A Charitable Gift Annuity (CGA) may be funded with unique or hard-to-liquidate assets as well as cash or marketable securities.  Charities face risks inherent in using real estate (or other non-cash assets) to fund an annuity: that of making the annuity payments before the proceeds of sale have been realized.

Two commonly used tactics to mitigate this risk are:

  • Defer the payment of the annuity for a period of time that allows for the sale of the property. (It is also important to agree on who is responsible for holding period costs on the property until sale.)
  • Substantially discount the normal CGA rate to hedge the risk of making payments until they can invest funds in a diversified array of assets.

Older donors may be unwilling to wait to receive payments, and even those donors who will accept deferred payments, are reluctant to sacrifice a portion of the rate they would be entitled to receive from a normal CGA.  For example, if a donor agrees to a 1% discount on a CGA rate of 5%, they correctly see that as a 20% reduction in payments.

Another approach we’ve used is to adjust the value of the contract if the sales proceeds from the liquidation of the asset are less than the original appraised value.

At the National Gift Annuity Foundation (NGAF), we recently completed such a transaction.  The donor owned a rental property appraised at $420,000.  We accepted it and issued a 6.4% per year CGA with an annual annuity payment of $26,880, providing that NGAF would make quarterly distributions “at the annual rate on the net proceeds received by NGAF or if less the appraised value.”  In short, if the net proceeds received were greater than the appraised value NGAF would make distributions based on the appraised value, but if the net proceeds were less than the appraised value NGAF would make distributions based on the net proceeds.

We also set the period during which this annuity adjustment could be made - limited to two years - allowing for an extended period to complete the sale of the property.  However, if the parties agreed, the adjustment period could have been longer or shorter.

This allowed for the CGA contract to provide quarterly distributions at the annual rate of $26,880 to be established and begin before the property was actually sold. As it turned out, the property was sold for net proceeds of $385,932 before the first quarterly payment period and so we revised the annual CGA distribution to $24,700. Had the property not sold for a year, NGAF would have initially made quarterly payments based on the appraised value of $420,000 and would have recovered the difference of $2,180 ($26,880-$24,700) from the first quarterly payment following the sale.

And of course, as part of any CGA, the donor has named the referring charity to receive the +/- $193,000 in the remaining funds (100% of the residuum).

Let NGAF help increase your CGA program by tapping your donors’ vast reservoir of unique assets.  Real estate, business interests (including S-corps), and other illiquid assets can be used in this way. More information on the NGAF is available at and other services/resources can be found at or you can give us a call at 888-811-NGAF.

Charitable Solutions, LLC/National Gift Annuity Foundation Management Team

Bryan Clontz, Ph.D., CFP®, CAP®

Gary Snerson, JD

Ryan Raffin, JD

Mike Carey

Johnne Syverson, CFP®, CAP®

Julie Rapacioli, CPA