Regulation of Charitable Gift Annuities
Degree of Regulation:
Issuance of charitable gift annuities is regulated under Tennessee Code Annotated, Sections 56-52-101 through 56-52-111.
In order to issue gift annuities in the state, a charity must meet the following regulatory requirements:
- obtain a certificate of authority from the Tennessee Insurance Department
- maintain gift annuity reserves, invested in accordance with the prudent investor standard
- submit an annual filing to the state
Actions Required for Exemption:
A charity must apply for a certificate of authority from the Tennessee Division of Commerce and Insurance prior to issuance of any post-January 1, 2009 gift annuity in the state. Prior to that date, Tennessee law required simply notifying the state of intent to issue gift annuities. Note that charities that previously filed a notification with the state must still file an application in order to be qualified to continue issuing under the new law.
There is an application fee of $675.
Disclosure and Agreement Content Requirements:
A disclosure must be provided to, and acknowledged by a signed statement from, a donor, with such disclosure either being in a separate document or included in the annuity agreement.
Suggested Language for State Disclosure: “Payments made under a charitable gift annuity are backed solely by the full faith and credit of the organization, are not insured or guaranteed by an insurance company, are not protected by any insurance guaranty association, and are not backed in any way by the State of Tennessee.” (Note: This language is slightly different than the disclosure required under the prior notification statute.)
The annuity agreement must include the following:
- The value of the property to be transferred
- The amount of the annuity to be paid to the donor or other annuitant
- The manner in which and the intervals at which payment is to be made
- The age and sex of the person or persons during whose life payment is to be made (date of birth and use of gender-specific pronouns are acceptable)
- The reasonable value as of the date of the agreement of the benefits (with an indication the value is calculated using a methodology approved by the IRS)
- The date the payments are to begin
- Tennessee law must govern
A charity must maintain a segregated reserve fund for its Tennessee annuities issued on or after January 1, 2009. The fund must hold reserves on outstanding annuities calculated in accordance with a standard valuation methodology, plus a surplus of 10%, or hold 100% of the annuity contributions. A deduction in reserves may be made for any portion of the annuity risk that is reinsured by an authorized insurer. The reserve fund must be invested in accordance with Tennessee's Uniform Prudent Investor Act.
An annual report is required, due either 90 or 150 days after fiscal year end.
There is an annual renewal fee of $100.
Any annuity issued by a charitable organization that does not meet all requirements of the law will be subject to the Tennessee Insurance Code.
Links to State Regulations Pages:
James C. Ayers, CPA
Insurance Tax & Licensing Manager
Tennessee Insurance Division
Davy Crockett Tower, 7th Floor
500 James Robertson Parkway
Nashville, TN 37243