Gift Annuities: The Good, the Bad, the Great
The good: they are important giving tools for your members.
The bad: they are incredibly complicated to offer and manage.
The great: the denomination's Foundation(s) will offer and manage them for you.
The good: they are important giving tools for your congregation members.
They can be incredibly practical gifts for certain donors, so there is great commotion about them. However, they are not nearly as common as other estate gifts, particularly bequests. Even still, gift annuities are the talk of the gift planning industry. We see stacks of materials from universities, museums and hospitals. All large charitable organizations offer them, and fortunately our churches can too. Simply put, they are an expected tool in any planned giving arsenal.
(You are exempt from) The bad: they are incredibly complicated to offer and manage.
While the denominational Foundations will offer and manage them, we in the church have to market them. Therefore it is quite a good idea to know the mechanics of gift annuities so that we can intelligently discuss them with inquirers.
Who decides the rates: Gift annuity rates are ultimately set by the issuing charitable organization. However, most of those charitable organizations choose to comply with the rates that are recommended by the ACGA (American Council on Gift Annuities).
How do they decide the rates:
The goal is to provide the beneficiary a residuum of at least 50% of the original gift amount. Rates are determined by actuarial studies taking into account life expectancies and financial market expectations.
How much does the church actually get? Impossible to predict what the residuum will be. While the target stated above is 50%, it is usually much more or much less than the target. On the other hand some issuers of gift annuities make an immediate distribution after the gift annuity is established. They distribute immediately the net present value of the gift as a means of minimizing their risk and guaranteeing at least some value to the beneficiary. The net present value is a definite figure.
The great: the denomination's Foundation(s) will offer and manage them for you.
Is there a simple way to explain these to the congregation?
Absolutely. Most congregation members do not want excessive detail. Basic brochures and customized gift proposals are available to you free of charge at the Presbyterian Foundation and the Texas Presbyterian Foundation. Also in our library there are many samples of tools used by other Presbyterian churches. Please consider requesting and using customized gift proposals from the denominational Foundations. They are the most compelling tools.
What does the church have to do?
Outside of marketing the concept to the congregation and receiving the benefit, usually the church is entirely uninvolved in the charitable gift annuity until the church's benefit is distributed.
Is there any liability for the church if the gift annuity investment loses all market value? and the annuitant still receives payments? The individual congregation does not incur any of the loss in this situation. Of course the annuitant still receives income from the assets of the denomination's Foundation. Since the denomination's Foundation is obligated to pay the annuity even at their loss, there are clearly no funds remaining for the congregation at the death of the annuitant. Many congregations may be frustrated with this rare situation, yet they should be relieved that they were not the issuer of the annuity - in which case they would have done an immense amount of work and absorbed the entire losses.
How much does the gift annuity cost the church?
There are no out of pocket expenses for a church whose members use gift annuities. Generally there is an administrative fee of 100 basis points or 1% taken from the fund balance annually. This is the assumption when the ACGA recommends rates, and most charitable organizations are in that range.