Charitable Gift Annuities - A Cautionary Tale
Friday, October 2, 2009
By: James S. Hohn

A few months ago I met with the Director of Development of a large nonprofit organization headquartered in New York State (NYS) to discuss their mature Charitable Gift Annuity (CGA) program established more than ten years ago.

This experienced leader explained that the Board had been assured by the consultant who developed the program that there was absolutely no need to register the annuity in New York State.  When I posed the possibility that the Board had been given incorrect information, the individual ended the call saying:  “Our professional would never have recommended we embark on such a complex process without a thorough knowledge of what was required.”

Last week these well-meaning individuals learned that they put their trust in someone who did not take the extra step to check with a Planned Giving expert and acted without the correct information.  By not filing for exemption in NYS, the organization’s entire assets may be held liable for the fines and penalties accumulated for each year the reports were not filed!  After this extended time, the income from CGA’s had become a critical part of the nonprofit’s financial stability. 

The problem may not stop with the original CGA’s lack of compliance.  Depending on the final decision of the regulators, it is possible that any newly established CGA would also be halted until the proper forms required for the original annuity are finally filed and accepted.  The delay could last anywhere from a few weeks to more than a year. In addition to the disappointment and last-minute scramble to maintain the organization’s fiscal credibility, each member of the leadership team had invested a great deal of time in this initiative.   It is unfortunate that a planning short-cut resulted in jeopardizing the organization’s entire annuity program.

We all know that Planned Giving is a complex field.  When properly managed, a charitable gift annuity will provide long-term, consistent, and sustainable income flow for the donor and a continual source of assets for the nonprofit organization.  The key is to install the plan with full knowledge of all of the regulations and requirements that are demanded by each state government.  Remember, planned giving involves working with an individual’s personal assets often a home or business that the donor has invested their life into building.  Before taking on this tremendous responsibility, it is vital that your organization conduct its due diligence.

When it comes to charitable gift planning, it is wise to know the rules and talk with the experts.

About the Author

James S. Hohn, Principal of Planned Giving Resources (http://www.pgresources.com/),  has more than three decades of knowledge and experience in planned giving and gift annuity development and administration.  If you have any questions about the annuity process, visit the website   PGResources for a free detailed, step-by-step outline of the Planned Giving process.