Posted August 1st, 1998

Federal Court Gives Gift Annuities the Green Light

As we reported in the March 1998 issue of Give & Take, the U.S. Court of Appeals for the Fifth Circuit has been reconsidering a judgment made in the Texas lawsuit regarding gift annuities. The federal court ruled on June 12 that charities may join together to decide payout rates on gift annuities.

This four-year-old lawsuit accused thousands of charities of violating anti-trust laws by conspiring to set uniform gift annuity rates. While this ruling ends once and for all the anti-trust lawsuit, the controversy around gift annuities continues. A similar lawsuit is still being debated in Texas state court. And a group of the National Association of Insurance Commissioners is considering a proposed law that addresses bringing uniformity to the way states regulate gift annuities.

What does this ruling mean for gift planners and the nonprofit world? Barlow Mann, chief operating officer with Robert F. Sharpe and Company, had this to say: “The action of the Federal Fifth Circuit brings much welcome news to America’s non-profit sector. We expect that there will be renewed interest in existing programs and that a number of new charitable gift annuity programs that have been ‘on hold’ will be launched in the next few months. The attractiveness of gift annuities is very broad and is being enhanced by recent tax law changes and demographic trends. Many mature planned giving programs have discovered that gift annuities are second only to bequests in terms of the number of gifts and dollars raised from planned gifts.”

For many years the American Council on Gift Annuities, which is made up of nonprofits from across the country, has offered recommended rates in order to prevent charities from inadvertently paying rates that may be too high for economic providence and to discourage charities from competing for donors on the basis of financial gain. Their reasoning is that if most charities agree to offer the recommended rates, donors will be more likely to make their choice to give based on the organization’s mission rather than payout rates.

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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