2. All slides are
taken from this
book.
Available from
Amazon.com
Full color version available at
www.createspace.com/4707238
3. …
An initial gift
is exchanged
for lifetime
income
2014
2015 2016 2017 2018 2019 … Death
4. Example donor
ages & rates
July, 2013, American Council on Gift Annuities
30 2.6%
40 3.0%
45 3.3%
50 3.7%
55 4.0%
60 4.4%
65 4.7%
70 5.1%
75 5.8%
80 6.8%
85 7.8%
90+9.0%
5. Donor, age 55 gives $100,000 in stock and
the charity pays $4,000 per year for life
Initial Gift
Annual Payments
1/1/2018
1/1/2017
1/1/2016
1/1/2015
1/1/2014
Donor 4,000
FourThousandandno/100
Charity
6. 2015 2016 2017 2018 2019 … Death
…
2014
ACGA suggested
rates leave about
half of initial gift
for charity at
death
7. 2015 2016 2017 2018 2019 … Death
…
2014
IRS requires
present value
of charitable
share >10%
8. Charitable gift annuity
measurements
App. $15 billion total
Avg. annuitant age 78
Avg. duration 14 years
Avg. size $60,000
Min. size $5,000-$10,000
Clontz, Bryan (2010) Managing risks in CGA programs, American Council on Gift
Annuities 29th Conference on Gift Annuities, April 28-30, New Orleans, LA
9.
10. I want to make
a large gift, but
I am afraid I
will outlive my
assets and be
left with no
income
11. 2015 2016 2017 2018 2019 … Death
…
2014
Lifetime
income
prevents the
donor from
giving “too
much”
12. I am leaving an estate
gift, but would like an
immediate tax
deduction and
income
13. 2015 2016 2017 2018 2019 … Death
…
2014
If estate gift
is already
desired, CGA
adds current
deduction &
income
16. Large charitable gift annuity use
increased following market volatility
A charitable gift
annuity backed by
all assets of a large
charitable
institution
A charitable
remainder annuity
trust backed by
donor’s initial
investment
17. I want a simple
way to give a small
amount but still get
income and a tax
deduction
18. Charitable
Remainder Trust
Flexible & Expensive
• $4,000-$12,000 setup with
$1,000-$5,000 annual
administration
• Minimum feasible
investment amount
$50,000 - $100,000
Charitable
Gift Annuity
Simple & Cheap
• No donor costs for setup or
administration
• Minimum investment
amount $5,000 or $10,000
19. I want to make a
gift and get
income,
but I want to
see the
impact of my
gift while I
am alive
24. Oct, 2013: See information at http://www.acga-web.org
Charitable Gift Annuity Reserve Requirements
Operational requirements
NONE: AL, IN, KS, KY, LA, MA, MI, MN, ND, TN, UT
3 years + $100,000: ID, MO, NC, OK, PA, TX, VT, VA, MT
3 years + $300,000: AK, AZ, CO, CN, GA, IA, MS, NV, NH, NM, WV, WA(+$500,000), NE(+$0)
5 years: AR, FL, ME, SC, OR (+$300,000)
10 years: CA, NJ, NY, WI, MD (in state), SD (+$500,000), HI (in state + $200,000), IL (20 years +$2MM)
*Dollar figures refer to minimum unrestricted cash or publicly traded securities held by organization
None
Actuarial Liability
Actuarial Liability +
Other
33. …
2014
Donor could leave
all to charity but
always keep
emergency right to
income by
perpetual deferral
2015 2016 2017 2018 2019 … Death
34. 2015 2016 2017 2018 2019
2014
Donor could gift
remaining
annuity if
income was no
longer needed
Rights to all
future
payments
35. 2015 2016 2017 2018 2019 … Death of annuitant
…
2014
Donor can
name a
different
person as the
annuitant
36. 2025 2026 2027 2028 2029 … Death
…
2014
Donor can name
grandchild as life
annuitant with
first payment to
start at age 18
(+ option to
trade for lump
sum tuition
payment)PLR 200233023
39. One person living too long in a large pool
of similar sized annuities is not a problem,
because others will probably die early
-24.5
-22.5
-20.5
-18.5
-16.5
-14.5
-12.5
-10.5
-8.5
-6.5
-4.5
-2.5
-0.5
1.5
3.5
5.5
7.5
9.5
11.5
13.5
15.5
17.5
19.5
21.5
23.5
40. Many charities have a small pool or a pool
with a few very large annuities, creating a
greater risk of an overall imbalance
-24.5
-22.5
-20.5
-18.5
-16.5
-14.5
-12.5
-10.5
-8.5
-6.5
-4.5
-2.5
-0.5
1.5
3.5
5.5
7.5
9.5
11.5
13.5
15.5
17.5
19.5
21.5
23.5
B
I
G
$
B
I
G
$
$ $ $
41. Risk Question
Why is an annuity
for an 80 year old
riskier for the
charity than one
for a 40 year old?
42. What is the chance the charity could
make twice as many payments as
expected?
80 year old
female payout is
based upon life
expectancy of
about 9 years.
40 year old
female payout is
based upon a life
expectancy of
about 42 years.
43. Risky practices:
Using actuarial value
of gift up front
• No room for error in
annuitant longevity
• Standard IRS tables do not
consider self-selection.
(I.e., sick people do not
buy annuities; poor people
do not buy annuities.)
44. Risky practices:
Issuing a gift annuity in
exchange for difficult to
value/sell contributions
• Appraised value allows the
donor to take the tax deduction
• But, if charity cannot sell for
appraised value the charity
may lose money
• If sale takes substantial time,
charity would have to make
annuity payments from its
general operating funds
45. Risky practices:
Giving all to a restricted account at death
Wheredofundscomefromforthosewith
longliveswhoexhausttheirinitialgift?
46. As charities move away from secure, fixed
income investments of appropriate
duration, investment risk increases
47. Reinsurance exactly matches
income to liability
Payments Payments
Charity Insurance
CompanyDonor
Charities can reinsure all or selectively
offset the risk of very large annuities
48. Financial advisors
and gift annuities
• Managing gift annuity
asset pools for
nonprofit
organizations
• Selling commercial
annuities as
reinsurance
• Giving advice to
current clients or a
nonprofit’s donors
CGA
49. Charitable gift
annuities exempt
from securities
regulation except
• If sales commissions
paid
• Where marketed
primarily as
investment,
comparing “yields” or
“returns” with CDs
and other
investments
http://www.ca9.uscourts.gov/datastore/opinions/2009/06/24/07-
15586.pdf
51. Help me
HERE
convince my bosses that continuing to build and
post these slide sets is not a waste of time. If
you work for a nonprofit or advise donors and
you reviewed these slides, please let me know
by clicking
52. If you clicked on
the link to let
me know you
reviewed these
slides…
Thank
You!
53. This slide set is from the curriculum for
the Graduate Certificate in Charitable
Financial Planning at Texas Tech
University, home to the nation’s largest
graduate program in personal financial
planning.
To find out more about the online
Graduate Certificate in Charitable
Financial Planning go to
www.EncourageGenerosity.com
To find out more about the M.S. or
Ph.D. in personal financial planning at
Texas Tech University, go to
www.depts.ttu.edu/pfp/
Graduate Studies in
Charitable Financial Planning
at Texas Tech University
