Posted August 1st, 2005

2004 Survey of Charitable Gift Annuities
Sharpe Group Executive Summary

The American Council on Gift Annuities (ACGA) has recently released the results of a comprehensive survey conducted in 2004. The report and comments provide important information about the latest trends surrounding gift annuities, one of the most popular gift planning vehicles. This third national survey con-ducted by the ACGA since 1994 should help charities evaluate their gift annuity development efforts in relation to broadly based national data.

Growth of gift annuities

While the report is based on responses from 829 organizations, the ACGA report estimates that over 4,000 charities currently offer charitable gift annuities. Nearly one-half of the survey respondents have been issuing gift annuities for under 10 years, and nearly one-quarter have been offering gift annuities for less than five years.

According to the report, the average number of gift annuities completed per year is 17.4 while the median number of new gift annuities is 5. These figures indicate that most charities enter into a relatively small number of contracts each year. The average annual dollar volume of gift annuities ($645,000) also shows a significant deviation from the median ($199,000). The majority of issuers report an increase in activity over the past three years, no doubt benefiting from the low interest rate environment and uncertainty in the economic markets.

The donor profile

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The vast majority of gift annuitants are in their seventies and eighties, and the average age of those funding immediate-payment gift annuities is 78.1 years. Annuitants are relatively evenly split between women and men at 54.7% and 45.3% respectively. Over two-thirds of the contracts are one-life agreements and 92% are for immediate-payment annuities. Cash and securities remain the primary funding sources, with real estate and other assets used in just 3.6% of the cases. The average amount used to fund a gift annuity is almost $60,000, yet the median is less than half of that amount at $28,027. Like the average number of gift annuities and the dollar volume each year, the average is pulled up by a relatively small number of larger gift annuity contracts. Over 97% of charities always or usually follow the recommended ACGA rates.

Minimum ages and amounts

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While respondents to the survey reported a broad range of minimum contribution amounts, the median is $10,000, continuing the trend of charities to increase their minimum funding amount.

The majority of charities have set a minimum age of 60 or below. In fact, over two-thirds indicate a minimum age of 65 or younger for immediate-payment annuities. As noted above, however, the actual average age of annuitants for immediate-payment contracts is 78.

Miscellaneous findings

Over the past ten years a growing number of charities have chosen to outsource all or part of their program’s investment and administration. In the most recent year surveyed, external asset managers achieved a median return of 9.8% versus 7.8% for internal managers. Over 80% of the respondents feel that the 1% cost of administration and 50% residuum are appropriate assumptions when setting recommended gift annuity rates. Over 80% indicate that they do not spend any funds contributed for gift annuities until the payment recipients die. They then remove whatever remains of the original contribution from the reserve fund.

Overall, religious and environmental organizations report the greatest amount of gift annuity activity. They are followed by education and healthcare and social services, while the arts and community foundations report the least activity. Based on 4,000 charities issuing an average of 17.4 annuities apiece, almost 70,000 gift annuities were issued for the year reported. With an average volume of $645,000, this amounts to approximately $2.6 billion in new contracts.

To learn more about the different types of gift annuities, investments, administration, and regulations, you may obtain the complete 40-page report from the ACGA. For more information, see the American Council on Gift Annuities’s Web site at www.acga-web.org.

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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