Catholic Extension Celebrates its 100th Year
of Charitable Gift Annuities

Catholic Extension's founder Father Francis Kelley saw the potential of a relatively new financial tool for the Catholic Church that is still a bedrock of the organization's fund-raising 100 years later. In 1908 he convinced the organization's Board of Governors to approve Catholic Extension's Charitable Gift Annuity Program, now one of the longest-running programs of its kind in the nation.

As Director of Annuities Michael Prym explains here how Catholic Extension's century of experience can be a valuable resource for Catholics who want to make the most of their gifts to the Church in the American missions.

The Charitable Gift Annuity is called the gift that gives back, but many people probably don't understand how it works. How do you explain it?

The annuitant makes an irrevocable gift and receives a fixed rate of return, based on his or her age, for the rest of his or her life. The rate is higher as they are older - or when they choose to start receiving payments. They receive an immediate one-time charitable deduction of at least 10 percent, and part of the income is tax-free over their life expectancy.

It helps the donor, obviously, and it helps the missions by creating income to support the needs of poor dioceses.

But the program today is different from its inception in 1908.
Can you explain what's changed?

Yes, at the beginning it was more what we'd now call a life income plan. Donors gave a certain amount of money, and we guaranteed them a fixed rate of return, which was 3 or 4 percent. Then in the 1960s, the plan changed to one based on life expectancy with different rates of return depending on your age.

Another difference too, is that many states have created regulatory requirements for annuity issuers. You must be proud that Catholic Extension meets these state requirements.

Yes, we're very proud of that, and it reflects a team effort among our comptroller, our treasurer, our legal counsel, our actuaries and also the respective states to which we are responsible for reporting. The states are doing this to protect their citizens from inappropriate practices and make sure their residents receive the payments they are due.

And, even before regulation, Catholic Extension never missed a payment in 100 years!
Not only was there a perfect record, but we, in fact, took meticulous care during World War II to make that happen.

Then, as today, a number of annuitants resided overseas. Obviously people who lived in the European war theater were unable to receive their payments, so we set up accounts for each one of them at a bank in New York City. All their annuity payments were sent and interest accrued in those accounts.

Then after the war, all these annuitants were notified where their payments could be obtained and how they could receive their checks again. That's the type of care and professionalism and commitment that Catholic Extension had and continues to have towards its donors.

The Philanthropy Journal reported that there has been an explosion of annuity programs in charitable organizations across the country. Why do so many donors like Catholic Extension Annuities?

There are a number of reasons. Many people choose to make outright gifts or include us in their estate plans, but this is a unique way for some of our friends to participate in our work while receiving an income they might need.

Some of our friends would say what distinguishes us from the hundreds of other organizations today is our reliability and the flexible payment choices. You might describe it as our proven track record plus we have the credibility of being a papal mission society. Obviously, too, there are tax advantages for people funding annuities through cash gifts and appreciated securities.

Then there's also a sense of safety that Catholic Extension provides our friends through our professional, personalized service. In our current staff we have well over 50 years of combined experience that allows for more accuracy in contracts, checks going to the right place at the right time, etc.

We've also sometimes recommended another type of charitable gift if we see that it fits someone's particular situation better than an annuity.

So you've found that, while the charitable gift annuity can help people give at a higher level, it may not be right for everyone?

Oh, yes. For example, if someone has highly appreciated assets of securities or property, and they are looking for a way to limit or reduce their capital gain entirely, we might talk to them about a charitable remainder trust.

[The charitable gift annuity] is an irrevocable gift without any cash or death benefit. You can't go back and undo it. So that's a major decision, and we recognize that people are [making] a substantial commitment.

Many annuitants may take one to three years to make that decision. We know that because of the type of proposals they are asking for and their questions. We know that they are also praying over and discerning whether this is what God is calling them to do.

So sometimes people along the way will decide to take an annuity, and other people have called back and said, "It's not time," and we respect that because this is God's work, God's society and being in a Catholic organization, we encourage people to make that faith decision - and it's a monetary decision too.

Besides Catholic Extension's mission work, the high annuity rates must also look attractive. Some people may wonder how we can offer these rates when the bank interest rate is only 3 or 4 percent?

Yes, that's a good question. We historically have offered some of the highest rates of return. The rates are sound because they are based on our compliance with state regulations and the findings from our annual actuarial analysis. We're confident that, with the calculations by the actuaries and the investment guidance of our Board of Governors' finance committee, we can offer these rates.

And deferred annuities offer even higher rates.
That's another path that allows an individual to take out an annuity but defer, or postpone, the payments until a later date. The whole notion of this gift is that the younger you are, and the later you start your payments, the higher the rate.

You receive an immediate tax deduction of at least 10 percent. And if you were 50 and taking payments at age 70, your rate would be approximately 16 percent. That allows more people, given the uncertain economic times that we're in, a future fixed rate of return that they can rely on.

However, it's about more than just high rates for most people, isn't it?

Yes, for friends of Catholic Extension, it's more than charitable giving; it's really indicative of their spirituality and stewardship. And that's what sets us apart from healthcare and social service agencies. I have been deeply moved by our annuitants' spirituality of giving and the process they go through to make a gift to the missions through the annuity program. They are giving back to God...returning to God a portion of what God has given to them.

Above all that we've talked about, this is, to me, the key to the success of our program. In the midst of all the financial and legal requirements, we honor and value that person's relationship with God and how charitable gift annuities can be the vehicle for that relationship to meet a need in America's home missions.

They see in EXTENSION Magazine the reasons why their gifts make a difference in the faith lives of Catholics in the poorer parts of our country.

Another advantage is that someone can structure charitable gift annuities to benefit a loved one. Can you talk about some of those arrangements?

Yes, we've seen a variety ranging from parents taking annuities for their children, young adults for their parents, aunts for nieces and nephews. People also have used them for birthday gifts, and since there were very few pension plans years ago, a number of priests have even set up annuities for their staff so their parish workers will have an income when they retire.

And speaking of making gifts to the home missions, do many people terminate their annuities as an extra gift to the missions?

Yes, some people come to a point in their lives where they don't need the income because of taxes or a variety of other reasons. They can make a gift of the remaining value and receive an income tax deduction for the value of the remaining life interest.