We occasionally receive calls from clients regarding questions about the best way to perform internal accounting for charitable gift annuities. As a split-interest charitable gift arrangement, the CGA represents both a gift to the charity and a financial obligation to the annuitant(s). On this much, there is general consensus, but on the manner in which the charity should compute the estimated remaining liability for each CGA over time, there are two main approaches. Given that the total funding minus the charitable deduction equals the total estimated liability at the outset of the gift arrangement, some organizations choose to record the incremental changes in liability as a sort of mortgage payment plan, or straight-line depreciation schedule. This method essentially amortizes the total estimated liability at the beginning and breaks that total down into regular and consistent annual amounts (sometimes even quarterly amounts). There is a fundamental problem with this approach; A gift annuity is NOT a mortgage.
[NOTE: The following is based on a true story.] Some of the numbers just didn’t make sense. It was that most wonderful time of the year for a non-profit organization – the closing of the June 30 fiscal year! Almost like Christmas in July, everyone was busy reviewing tally sheets and running various reports in an effort to provide comprehensive information about the gifts received over the previous 12 months. With outright gifts, of course, the process was fairly straightforward – whatever was received, for the most part, was counted with a few exceptions. With life income gifts, however, the process was a little more complicated, since the organization needs to report the total funding amount, the estimated liability, and the estimate of the charitable remainder.
I found a recipe for Cherry Surprise Cookies. The surprise is a nugget of chocolate inside the cookies. Like these delicious-sounding cookies, deferred gift annuities can come with a surprise. The surprise can be pleasant like chocolate or dreadful, as in losing lots of money.
The American Council on Gift Annuities’ (ACGA) Survey of Charitable Gift Annuities is the best source of data there is on gift annuities and gift annuity programs. Right now, the ACGA is conducting its latest nationwide survey of charitable gift annuity programs and you can help! Please consider participating in this enormously valuable survey.
On May 8, 2020, the American Council on Gift Annuities (ACGA) announced there would be new suggested maximum gift annuity rates, effective July 1, 2020, to replace the rates that became effective on January 1, 2020. The ACGA released the new 1-life annuity rates on May 29, 2020 and the 2-life annuity rates on June 11, 2020. The ACGA’s decision to reduce its suggested maximum gift annuity rates was triggered by the plunge in interest rates starting in mid-February, one of the countless consequences of the ongoing coronavirus pandemic.