Is Your Gift Annuity Program In Compliance
A review of the Philanthropy Protection Act of 1995

Your Planned Giving Program’s Support Of Other Programs
You’re all in fundraising together

Consulting News
New client and somewhat new contact information

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“The Philanthropy Protection Act of 1995 struck a bargain with non-profits. You’ll want to be certain your organization is upholding its side.”

Charitable Gift Annuities are a valuable component of a Planned Giving program because they bring life income to donors of modest means. Of course the wealthy execute CGAs as well, but they have other life income options available, most notably the Charitable Remainder Trust. But someone who is middle income and has just ten or twenty thousand dollars to give can get fixed income for life from their modest gift. That can give a real boost to them and to your Planned Giving program.

Yet, Charitable Gift Annuities are subject to all sorts of state and federal regulations, and your program needs to comply with all the regulations that are relevant to your program, or else you can subject your organization and your donors to some rather serious consequences.

On the federal level, CGAs are regulated by the Philanthropy Protection Act of 1995 (Public Law 104-62) and the Internal Revenue Code.

Then there is the web of state regulations, typically found within the states’ insurance departments, though there are exceptions. In Florida, for instance, you have to talk, in part, to the Department of Agriculture. Your program needs to comply with the regulations of the state in which you are incorporated, the state where you are physically located and the states where your CGA donors reside.

The subject of this article is CGA compliance with the Philanthropy Protection Act of 1995. The Act created a bargain between federal securities regulators and non-profits.

The basic bargain is that a non-profit, its trustees, directors, officers, employees, volunteers and consultants will be exempt from regulation under the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940 and state securities statutes and regulations if the non-profit complies with two requirements: (i) issue disclosure statements to donors and (ii) do not pay commissions for gifts. Let’s look at this in more detail.

Your charitable organization, and everyone in the positions listed above, is exempt from the stated securities regulations. Also exempt are those who solicit “donations on behalf of such charitable organization from any donor . . .” and those “engaged in the overall fundraising activities of a charitable organization . . .” That certainly includes fundraising consultants, even though they aren’t explicitly named. All these parties enjoy the exemption as long as your institution complies with the two requirements. I’ll get into that shortly. But first, a one paragraph digression.

The scope of this article is CGA compliance, but I think it’s helpful for you to know all the gifts the Philanthropy Protections Act applies to. The Act specifically names (i) the general endowment fund or other funds; (ii) Pooled Income Funds; (iii) Charitable Gift Annuities; (iv) Charitable Remainder Trusts; (v) Charitable Lead Trusts; (vi) any trust with its remainder irrevocably dedicated to charity; (vii) any trust with its remainder revocably dedicated to charity, if the right of revocation is limited to (a) “adverse change in the financial circumstances” of the donor or an income beneficiary and/or (b) “change in the identity of the charitable organization or organizations having the remainder interest, provided that the new beneficiary is also a charitable organization.” I think you’d be wise to add “(viii) life insurance” to the list, not because the PPA covers it, but because the good practices the PPA requires should extend to your gifts of life insurance too.

Now, let’s look at what you must do to keep your CGA program in compliance with the Act, so as to keep your organization, those fundraising for you, and your donors exempt from securities regulations and safe.

You must provide a disclosure statement to your CGA donors. The Act requires disclosure to be made at the “time of the donation” and that the disclosure be “written information describing the material terms of the operation of” a gift annuity. What are the material terms of a gift annuity? I believe this list should be included in your disclosure: (i) what assets are acceptable for funding; (ii) what will be done with the donated asset; (iii) seek the advice of a professional advisor to determine your tax consequences; (iv) how capital gain, if any, will be taxed to the donor; (v) how income will be taxed to the annuitant(s); (vi) what the breakdown will be between ordinary, tax free and capital gain (if any) to the annuitant(s); (vii) what commercial fiduciary acts as agent for investment, or explanation that it is managed in house; (viii) what entity (e.g. board finance committee) oversees investment performance; (ix) reminder that the annuity payments are backed by the full assets of the organization, not merely by the gift annuity fund; (x) explanation of the significance of the right to revoke; and, (xi) the donor and annuitant(s) may need to disclose the existence of the annuity if applying for Medicare benefits (in accordance with the Deficit Reduction Act of 2005).

You must also not pay commissions to those who do your Charitable Gift Annuity fundraising. More precisely, people in the positions listed above (trustees, directors, etc.), and anyone who “is engaged in the overall fund raising activities of a charitable organization” can receive “no commission or other special compensation based on the number or the value of donations collected . . .”

The Philanthropy Protection Act of 1995 struck a bargain with non-profits. You’ll want to be certain your organization is upholding its side

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“Everyone in the office, from chief development officer to gift acknowledger, has as their mission to help raise as much money as possible through their work.”

The best functioning development offices are collegial, collaborating teams. Everyone in the office, from chief development officer to gift acknowledger, has as their mission to help raise as much money as possible through their work. Strategies are shared; tough cases are talked through; prospects and information are shared. All with an eye toward deeper and broader donor relationships and closing more gifts. How can you as Planned Giving officer contribute to this environment?

Ask for annual fund gifts. When you meet prospects and donors, or have what I call a “meaningful contact” of any sort, thank them for their annual gift. After coordination with your annual giving director, consider asking for an increased gift. For those who don’t participate, ask why. Perhaps you can overcome their objections to giving annually. There is no reason why Planned Giving cannot support the annual fund.

Ask for help with corporate giving, corporate sponsorship, and foundation giving. If your prospect is highly placed in a company, and after coordination with the appropriate gift officer, consider asking for corporate support or sponsorship. Are you preparing for a meaningful contact with someone who sits on a foundation board or has a private foundation? Perhaps you can bring the appropriate gift officer along or have them on the call. If that isn’t right for this prospect, get some coaching ahead of time on what might be a good foundation funding opportunity in your organization and raise that possibility with your prospect.

Share information with your research staff. A meaningful contact almost always yields new information of some sort: a new grandchild, a home for sale, recent illness, stock windfall, business news, extended vacation, a new car. Whatever you find out should be part of your contact report. Hopefully, you enter your report into your centralized contact management database and forward it to your research staff for review. They are the central relationship managers who will know which other people in your office can benefit from the new information you’ve reported. As Suzanne Roberson, Senior Research Analyst at Rensselaer Polytechnic Institute put it, “they learn more relevant information in those conversations than hours of research could ever produce.”

Share information with administrative services staff. Are you expecting a transfer of stock by DTC or a gift by wire? Let the staff know in advance what to look out for. Often, especially DTC transfers, come without easily recognizable identifying information, like the donor’s name. If your staff knows to expect 2500 shares of Home Depot from your donor, you’ll make their job much easier when it arrives.

Conduct in-house training. Your program benefits, and you build goodwill, when everyone in development has a fundamental idea of what Planned Giving is and how it’s done. I mean everyone. Not just frontline gift officers (who should be more thoroughly trained), but administrative services, prospect research, secretaries and assistants. Consider running training once a week (over lunch?) for two or three weeks; or once a month. Provide enough information that people aren’t intimidated by Planned Giving but have a basic comfort with it. You’ll help everyone do their job as they support your program. And that can only benefit your program.

We need to break down the silo mentality in fundraising, where everyone functions only within their own specific area (annual giving, corporate giving, corporate sponsorships, major giving, etc.) and share information throughout development offices across all functions. Only then will we deepen and broaden prospect and donor relationships, turn more prospects into donors, and maximize the likelihood of meeting our full gift potential.

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• New Client
  I am pleased to welcome LEAP, Law Enforcement Against Prohibition, to our roster of clients. We will be helping this nationwide organization expand its individual giving.



• New contact information
  As announced in the last issue, we have moved to Manhattan and our domain name has changed. Here are the details:
  
  212-567-5680 (phone)
  212-937-2376 (fax)
  g
  www.mpgadv.com
  
  90 Park Terrace East
  4th floor
  New York, NY 10034

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I am always interested in your opinion of The Martignetti Report. You can send me a message from here with your comments. Or, you can always reach me through the company website

Best regards,

Tony Martignetti, Esq.
Managing Director
Martignetti Planned Giving Advisors

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