Sample Gift Annuity Disclosure Statement/Letter
The Philanthropy Protection Act of 1995 requires each charity issuing charitable gift annuities (“CGAs”) and which commingles funds from CGAs in a common investment fund to notify all prospective donors to the Fund at the time of the solicitation by providing “written information describing the material terms of the operation of such fund.”
The following is a sample disclosure for a charity to consider using, based upon advice and guidance from its own legal counsel:
We understand that you may be interested in a charitable gift annuity with (insert name of charity). With a gift annuity, you simultaneously make a charitable gift, and provide fixed payments for life to yourself and/or another person. The fact that you are making a charitable gift may entitle you to income, gift and estate tax deductions.
Our CGA payments are based upon the age of annuitants, according to rates suggested by the American Council on Gift Annuities (“ACGA”). These rates are most likely less than commercial annuity rates, with the difference being a gift to our organization.
Each annuitant will be taxed on the payments, as set forth in IRS Form 1099R, which we will provide or will arrange to be sent to you by a third-party administrator. Please seek the advice of your own tax advisor on your tax liability.
Annuity payments are not insured or guaranteed by any governmental entity, but are a general obligation of our organization, backed by all of our unrestricted net assets.
- Note: For a charity that does not file a Form 990, or does not have audited financial statements, consider adding the following language:
At (insert date), the value of our “invested funds” exceeded (insert amount). “Invested funds” include stocks, bonds, money market funds, and federal obligations, but do not include fixed assets such as buildings or other assets that are not publicly traded.
- Note: For a charity filing Form 990 or publishing audited financial statements, consider adding the following language:
Our total unrestricted net assets as reported on our most recent (insert Form 990, or audited financial statement) dated (insert date) were (insert amount).
- Note: If you offer CGAs in states requiring a segregated reserve fund, consider adding the following language:
We also maintain a gift annuity reserve fund valued at more than (insert amount), which is invested in accordance with the laws of the states in which we offer gift annuities.
Our publicly traded funds are managed by (insert name of investment advisor). Assets that are not publicly traded are managed by our Board of (insert Directors or Trustees).
Common investment funds managed by our organization are exempt from registration requirements of the federal securities laws, pursuant to the exemption for collective investment funds and similar funds maintained by charitable organizations under the Philanthropy Protection Act of 1995 (P.L. 104-62). Information in this letter is provided to you in accordance with the requirements of that Act.
For information on our governing Board and how we are run, see our website at (insert website). Also, please feel free to contact us if you have questions or desire further information.
The Disclosure Notice could also be sent to a donor, once again, at the time the gift is completed, if you so desire. Assuming this to be the case, the following language could be inserted at the beginning of the Disclosure Letter, in lieu of the first sentence:
Thank you for your recent contribution to (insert name of charity) for a charitable gift annuity. According to the gift annuity agreement, fixed payments in the amount of (insert amount) will be paid to (insert name(s) of annuitants) for life on (insert an annual/a semi-annual/a quarterly/ or a monthly) basis, beginning (insert the starting date for the annuity).
The Philanthropy Protection Act of 1995 (Public Law 104-62) requires that ALL participants in a charity's Gift Annuity Fund be notified with a Disclosure Statement similar to the above draft letter. The charity's prospective donor file (the charity's paper trail) should document the sending of this federally mandated Disclosure Statement. There is no federal requirement that the prospective donor sign it. Each charity should look to its own professional advisors to determine whether the suggested draft language is appropriate.
Various states mandate different disclosure statements and procedures. For example, some states require the disclosure statement to be signed by the donor and maintained in the files of the charity during the lifetimes of the annuitants named in the agreement. Other states (at least 24 states and the number is growing), mandate the precise wording or subjects to be covered in their state mandated Disclosure Statement. For state laws, see http://acga-web.org/state-regulations and always seek the advice of licensed, competent counsel.