Gift Annuity Fund Portfolio

 

GAF 101

It is the belief of The Trustees of the Funds (TOTF) that the GAF program will be of great benefit to Episcopal Church institutions in Virginia. In facilitating the core portfolio for long-term equity-based investments, the STAMP portfolio for cash management and now adding a simple planned giving vehicle to help our institutions raise and manage investment funds, this Gift Annuity Fund should help TOTF add to its heritage in serving the Episcopal Church in Virginia.

Gift annuities have been in existence since 1831 and they are one of the most popular (and simplest) forms of life-income gifts. Episcopal Church planned giving programs and capital campaigns in Virginia should benefit from this TOTF service. The Trustees feel so strongly as to the importance of this service, and to help provide peace of mind to those served by TOTF, that assets of TOTF (funds held in the name of TOTF) will serve as a backstop reserve for all annuities.

In the most basic example, a donor will contribute a funding amount to TOTF and a portion of that initial amount will be tax-deductible to the donor. TOTF will then issue quarterly payments to one (and possible a second person) and, for the majority of the annuity issuance, a portion of the quarterly distributions are tax-free to the annuitant. At the death(s) of the named annuitant(s), TOTF will issue the remaining fund balance (the residuum) to the Episcopal Church beneficiary named by the donor.

The donor gets an immediate tax deduction, named annuitants have a guaranteed income stream and an Episcopal Church entity receives a planned gift.

 

Gift Administration

 

While the GAF program will be of great benefit to Episcopal Church institutions in Virginia, understanding the mechanics of how it will function is important.

TOTF staff will work personally with donors to make sure that the donor’s wishes are adhered to and that the donor is very satisfied with the contract. Episcopal Church organizations in Virginia can help their own cause by making parishioners or constituents aware of this planned giving vehicle.

Based on donor interest, much of which can be completed prior to an initial meeting, TOTF will:

  1. Provide a contract illustration to a donor based on the donor’s specific information (amount, age, one or two beneficiaries, etc.).
    1. This will show the donor their taxable deduction benefit.
    2. This will show the expected quarterly annuity payment stream.
    3. The annuity rate that drives the annuity payment stream varies depending on the annuitant’s age.
  2. The donor must name one or two named annuitants.
  3. The donor must name one or more Episcopal Church beneficiaries.
  4. A donor will transfer a principal sum to TOTF to set up the annuity contract.
  5. TOTF will invest all contributed assets into the GAF investment portfolio.
  6. The GAF (through SunTrust as Third Party Administrator) will:
    1. Issue quarterly payments to the annuitant(s) of the contract,
    2. Issue required tax documents to the annuitant(s) and the IRS,
    3. Provide TOTF liability and reserve documents,
    4. Provide TOTF underlying portfolio reporting.
  7. Upon the death of the annuitant(s), the GAF will issue the residuum to the named Episcopal Church beneficiary(ies), and provide final accounting for the specific contract.
  8. The underlying portfolio is managed in-house at SunTrust based on the stated asset allocations of TOTF.
    1. There is a separate Investment Policy Statement (IPS) for the GAF. See “IPS” tab.
    2. This is a separate investment pool from both the core and STAMP portfolios.

The annuity payments are a general obligation of TOTF. This means that TOTF is obligated to issue the annuity payment stream regardless of annuitant lifespan. However, TOTF will not, like some institutions, use the contributed inflows for other purposes. TOTF will use the inflows only for the care of the annuities.

The balance between the annuity rates and payments versus the principal investment should not create an issue of risk for TOTF, but the Trustees are pledging their own assets as a reserve to provide an additional layer of support.

Virginia is an ideal state in which to offer GAFs as in terms of governmental requirements:

  1. There is no annual registration or filing requirements in Virginia for the issuance of this program.
  2. There is no minimum reserve requirement for a GAF in Virginia.

TOTF wishes to be clear that it is not providing legal and financial advice in provided materials and all donors are encouraged to consult with their advisors before proceeding.

  • Standards

    TOTF is using the standards of the American Council on Gift Annuities (ACGA) for annuity rates, minimum funding amounts and minimum annuitant ages. These ACGA standards go back as far as 1955 in the United States. The TOTF Gift Annuity Fund will use 65 years of age as a minimum for an annuitant, a $5,000 minimum funding amount and a $100,000 maximum funding amount. All contracts are individually generated based on the information provided.

    Current ACGA maximum suggested rates are 8% but those are for contracts issued to annuitants of approximately 86 years old. For annuitants in their mid-60’s, the annuity rate is very close to the expected return of the underlying portfolio. At age 65, for example, the current single life annuity rate is 4.7%.

    1. In the case of a two-life annuity, the minimum issuance age would apply to the younger of the two annuitants. ACGA annuity rates are then determined by the age of the older annuitant.
    2. If an annuity is to have deferred payments, ACGA recommends that the minimum age of the annuitant at the time payments begin be the same as the minimum age of an annuitant of an immediate gift annuity (65). So, an annuity can be created for someone under the age of 65, but payments can begin no sooner than when they turn 65.

    The target residuum, or remainder to go to the ultimate Episcopal Church beneficiary is 50% of the original contribution. This is an ACGA standard model. This is based on the investment of the full contribution, which is TOTF policy. According to the most recent survey by ACGA, the average (mean) residuum realized by reporting charities over the years 2004-2009 was 81.6% of the contribution.

  • Management

    The GAF has been under development by TOTF from early-2015 to mid-2016. In order to provide an efficient and turn-key operation, the SunTrust Foundations and Endowments Specialty Practice (based in Atlanta) will be the GAF back office. This office of SunTrust manages similar annuity pools for over 70 non-profit organizations and that experience is extremely helpful to TOTF.

    The GAF, like other TOTF services, will be run at cost. The total cost of doing business will be 75 basis points of assets under management. This covers the review of annuity contracts, annuitant payment processing, annuitant 1099-R reporting, asset management, and investment reporting back to TOTF. In providing all of these services, SunTrust relieves TOTF staff of these functions and allows an efficient means to provide this service.

  • Software

    TOTF is the initial point of contact for potential donors and our church institutions in making this service a part of their planned giving and/or capital campaigns. In-person presentations of materials are welcomed.

    TOTF staff will prepare the annuity examples, illustrations and contracts. TOTF will do so using the PGCalc Software product “Gift Annuity Manager”. The SunTrust specialty office in Atlanta will review all PGCalc generated illustrations and contract documents prior to funding. In using a product such as PGCalc:

    1. Annuity table updates are automatic and always current.
    2. Single life, double life and deferred annuities are easily handled.
    3. Sample annuity contracts are easily generated. A sample is included in the Forms tab.

  • Information Basics

    There are several key document requirements of a new life income gift such as the GAF:

    1. Biographical information on the donor and beneficiaries including:
      1. Home and payment addresses
      2. Dates of birth, and
      3. Social security numbers
    2. Final gift calculations (using PGCalc Software)
    3. Copy of the annuity contract agreed upon (using PGCalc software)
    4. Copy of gift acknowledgement from TOTF to the donor
    5. Clear documentation of the designated purpose of the ultimate beneficiary gift. This is supported from the initial information sheet (see Forms tab) so that there is absolutely no ambiguity on who the beneficiary is supposed to be.
    6. Information on the funding asset. This will likely be cash in most cases.

TOTF believes that an organizational core value or strength is the trust of those it serves. In developing the GAF, TOTF has been very thoughtful in its decisions, and especially so with regard to the impact of time on TOTF staff, the ease of use of an offered service and the flexibility in which we respond to potential participants in the GAF service offered.

GAF is a new service and, with the long-nature of life-planning gifts, it will take time to develop. TOTF is relying on the learned experience of other entities offering charitable gift annuity funds and is very appreciative of the extremely supportive guidance of a number of development professionals who happen to be parishioners.

As noted, TOTF believes in the perpetual nature of its work, and that purpose of being means assisting in the development of additional assets to support Episcopal Church mission and ministry. This is an enormously exciting opportunity for TOTF now and in the years ahead to be of service to the Episcopal Church in Virginia.

Forms and Sample Documents

Request to Establish a Gift Annuity Fund

Sample PG Calculation Summary

 

Investment Policy Statement

GAF Investment Policy Statement