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Gift Annuity Disclosure
Submitted September 1, 2022
All is well in our gift annuity program regarding the timing and amounts of the payments we send to donors – we’ve set up a good system internally to track that – but we’re now re-considering what should be included in our disclosure statement. An attorney at our law firm wrote ours, but it reads like a boring legal brief. I can’t imagine a donor actually reading through all 15 pages (and I don’t think many do). Although I understand it’s a legal requirement, I don’t know what the basis of the requirement is. Furthermore, I think some donors are put off by it. What kind of information should be included, so it isn’t such a cumbersome document?
First, the basis of the requirement: The Philanthropy Protection Act of 1995, which exempts charities from the Investment Company Act of 1940. In exchange for the exemption, charities are required to disclose information when funds are commingled. The pertinent portion of the text: “Each fund that is excluded from the definition of an investment company … shall provide to each donor to such fund … written information describing the material terms of the operation of such fund.”
In October 1995 I, along with three others in the nonprofit world — Terry Simmons, President and General Counsel of Charitable Accord; Paul Kling, Director of Planned Gifts at the University of Richmond; and Katelyn Quynn, Director of Planned Giving at Massachusetts General Hospital — testified in Congress, before the Subcommittee on Telecommunications and Finance of the Committee on Commerce, on behalf of this bill. Barry Barbash, Director of Investment Management at the Securities and Exchange Commission, also testified in support of the bill. Congress quickly passed it unanimously (yes, a different political era).
Shortly after, when I began working on a disclosure statement for clients (at the time I worked as the Director of Client Relations at Kaspick & Company, an investment firm that managed and administered planned giving assets), it occurred to me that I had no idea what “disclosure” meant, what information needed to be included. The bill was silent on that point. When I called Barry Barbash to ask for advice, he said neither the SEC nor Congress could provide guidance. That was the job of the charities. After I pestered him, he said this to me: “My recently widowed 91-year-old grandmother, who’s never balanced a checkbook in her life, should be able to understand it.” That was useful, ethical guidance from a highly placed attorney in the federal government.
So much for 15 pages of legalese. But what, then, does the donor need to know?
The first point is the general idea behind a gift annuity transaction: The charity is making payments in exchange for a gifted asset. The payments are most likely less than what a commercial annuity would provide, and that is because a gift element is figured into the transaction.
A second point would be to briefly explain that, and how, payments are taxed. We know this from the outset.
The third essential point would be to explain that the payments are backed by the assets of the charity, and therefore are not insured. Related to that, as comfort for the donor, explain how many unrestricted assets the charity has and, broadly, how gift annuity assets, in particular, are invested.
That’s the gist of it, and yours should be crafted to your satisfaction. There are several examples of disclosure statements that can be found online, which you (and your attorney) can review and use as guidance. I recommend starting with the sample document provided by the American Council on Gift Annuities. The key is to communicate essential information while at the same time not getting excessively detailed — or, as you say, granular. You’re right: We don’t want our donors to be put off by the document. Instead, it can be seen as a way to assure them that your charity is financially sound and sophisticated enough to be in the gift annuity business.
Gift Annuity Disclosure article continues below Doug White’s Bio.
If you have a question, please feel free to contact Doug White at email@example.com. While all issues discussed are real, identities are kept confidential.
Doug White, a long-time leader and scholar in the nation's philanthropic community, is an author and an advisor to nonprofit organizations and philanthropists. He serves as the Co-Chair of the Walter Cronkite Committee at FoolProof, and as a board member of the Secular Coalition of America. He is the former Director of Columbia University's Master of Science in Fundraising Management program, where he also taught board governance, ethics and fundraising. Prior to that, he was a lecturer at and the academic director of New York University's Heyman Center for Philanthropy and Fundraising.
Doug has published five books. His most recent, "Wounded Charity" (Paragon House, 2019), analyzes the allegations of mismanagement made in January 2016 against Wounded Warrior Project. Kate Bahen, the managing director of Charity Intelligence Canada, wrote, "An epic whodunnit. A sweeping sector perspective. A gripping read for everyone interested in the charity sector. The facts behind the news headlines leaves one reeling. How could this happen? Using the dramatic case of Wounded Warrior Project, Doug White addresses the key forces shaping today's charity sector. From his unique perch, he generously shares his insights and those of the sector's thought leaders. Doug White's books should be required reading for charity directors, journalists, staff and donors alike."
"Abusing Donor Intent" (Paragon House, 2014) chronicles the historic lawsuit brought against Princeton University by the children of Charles and Marie Robertson, the couple who donated $35 million in 1961 to endow the graduate program at the Woodrow Wilson School. The family contended that Princeton abused its mandate to spend the money as the donors wished — and as the university agreed. The Foundation Center had this to say about the book: "Well-plotted with the slow burn of a decades-old frustration, and immensely readable with the fate of hundreds of millions of dollars at stake — to say nothing of the reputation of one of America's most august universities — Abusing Donor Intent is equal parts thriller and cautionary tale."
His three other books are: "The Nonprofit Challenge: Integrating Ethics into the Purpose and Promise of Our Nation's Charities" (Palgrave Macmillan, 2010), "Charity on Trial: What You Need to Know Before You Give" (Barricade Books, 2007), and "The Art of Planned Giving: Understanding Donors and the Culture of Giving" (John Wiley & Sons, 1997), which was awarded the 1996 Staley/Robeson/Ryan/St. Lawrence Prize for Research by the Association of Fundraising Professionals.
He has written several articles for a variety of magazines and periodicals, including Trusts and Estates, the Journal of Gift Planning, Charitable Gift Planning News, and the Chronicle of Philanthropy.
Since 1979 Doug has advised hundreds of charities of all types and sizes — including social service, educational, health and environmental organizations. Today, he works closely with select organizations on ethical decision-making, board governance, and fundraising, as well as with individual philanthropists who want to see their gifts used most effectively.
A graduate of Dartmouth College, Doug worked as the development director at Holderness School (NH). For almost two decades (1982 – 2000) he served on the Capital Giving Committee at Phillips Exeter Academy and as its national chair for several years during that time. He has served in leading roles with two national planned gift and endowment investment firms. As a long-term consultant to Blackbaud, Inc. in the 1980s and 1990s, he developed one of the first planned giving software programs.
In 1995 Doug testified before a Congressional committee in support of the Philanthropy Protection Act, and served as an expert witness for the charitable defendants in a national lawsuit - the "Texas Lawsuit" - that threatened the ability of charities to raise money. He has also since served as an expert witness in other lawsuits relating to donor intent.
Doug is a past member of the Board of Directors of the Partnership for Philanthropic Planning (formerly the National Committee on Planned Giving). In 1996, while on the NCPG board, he founded the national initiative of Leave A Legacy. He is also a past chair of the NCPG Ethics Committee and the 1995 NCPG National Conference. He is a past president of the Planned Giving Group of New England and a past president of the New Hampshire/Vermont chapter of the Association of Fundraising Professionals. He writes the ethics column for the National Capital Gift Planning Council; in 2002 the council presented Doug with its Distinguished Service Award.
Since 1981 he has spoken at over 750 conferences on philanthropy, including the Association for Fundraising Professionals, The Council for the Advancement and Support of Education, the Partnership for Philanthropic Planning, the Association for Healthcare Philanthropy, United Jewish Communities, and hundreds of local professional organizations and planned giving councils, as well as many audiences sponsored by local charities and other groups.
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