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Planned Giving

State Regulations for Soliciting and Issuing Gift Annuities by Andrea Preissler

June 2017

Reviewing your gift annuity program periodically to ensure that your organization is compliant with state registration regulations is essential. Many organizations believe they are registered to issue gift annuities in a state because the organization is registered to solicit charitable donations in that state. However, the statutes for the issuance of gift annuities are different from the regulations for general solicitation. Charles M. Watkins, Esq. has written an extensive paper outlining the charitable solicitation registration statutes for each state. It is available on the ECFA website. http://www.ecfa.org/Content/Charitable-Solicitation-Requirements If your organization is not a member of ECFA, please contact us to get a copy of this paper.

We believe it is a best practice to be compliant in every state where your organization has issued gift annuities and where your organization is pursuing future gift annuities. First, you should examine where you currently have gift annuities. Each gift annuity is linked to a reserve state, which we interpret to be the state of the donor’s legal residency at the time the annuity is written. Please note that the reserve state does not change if the donor moves to a different state. Before your organization issues an annuity, always check the donor’s resident state and ensure you are compliant in that state. You should also consider where your potential future gift annuity donors may reside and become compliant in those states as well.

Most state regulatory codes treat charitable gift annuities as insurance and are subject to the State Insurance Commissioner’s regulations. There are four categories of state regulations. The first category is the easiest – the silent states. The silent states are Delaware, Washington, D.C., Ohio, Rhode Island, and Wyoming. These states do not have regulations regarding the issuance of charitable gift annuities.

The second category encompasses states that do not require any notification that your organization will be issuing gift annuities, but each state may have specific requirements that organizations issuing gift annuities must meet. These states are Arizona, Colorado, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Nebraska, Oregon, Pennsylvania, South Carolina, South Dakota, Utah, Virginia, Vermont, and Wisconsin. Examples of these requirements are minimum years of operation ranging from three to twenty years and levels of unrestricted assets ranging from $100,000 to $2,000,000. Each state is unique in its requirements.

The third category involves states that require your organization to notify them when you issue your first gift annuity. Each of these states requires that your organization has been in operation for at least three years. A state-specific disclosure must be included in the gift annuity contract, and unrestricted assets must be available (some states require $100,000, while others require $300,000). The notification states are Alaska, Connecticut, Georgia, Idaho, Iowa, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, Oklahoma, Texas, and West Virginia. Additionally, Georgia and Oklahoma require an annual submission of your audited financial statements. Montana and New Hampshire require annual notification.

The fourth category of state regulation includes states with reserve requirements, annual reporting requirements, and/or a detailed application before issuing gift annuities. Some of the application states require approval before issuing annuities in the state, and the approval process may take some time. States in this category are Alabama, Arkansas, California, Florida, Hawaii, Maryland, New Jersey, New York, North Dakota, Tennessee, and Washington. These states plus Montana and New Hampshire require that the organization have a separate reserve fund for gift annuities. The assets for these reserves must be held separately from the other assets of the organization and must meet or exceed the level calculated using that state’s methodology. California requires a separate fund held in trust for California annuitants only. The states require that you monitor your reserve requirements in relation to your gift annuity investments throughout the year. Many of these states also require specific investment allocations. For example, California requires a separate California reserve fund that is invested with at least 50% in fixed income. Our team periodically monitors the gift annuity investment allocation for our clients. For our gift annuity administration clients we monitor the required reserve levels in relation to the states’ requirements in preparation for upcoming state filings.

As we seek to proactively serve our clients, Cornerstone regularly reviews gift annuity programs for regulatory compliance. For example, we recently utilized the data we maintain on behalf of our clients to send each client a customized spreadsheet detailing the status of its program in relation to every state’s requirements. We welcome the opportunity to discuss your organization’s state registration compliance and how we can best assist you.

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