Dollar Value of Gift Annuities Rose Sharply, Survey Shows

The average dollar value of charitable gift annuities, a popular form of planned giving,

rose 59 percent from 1994 to 1999, to $30,182, according to a survey released last week by the American Council on Gift Annuities.

Average gift-annuity values were $19,325 at religious organizations, the largest issuer of such instruments. Gift annuities averaged $47,482 at private colleges and universities, and $68,893 at public ones, according to the survey.

Gift annuities allow donors to give cash or other assets to a charity in exchange for fixed payments. The percentage of the gift that a charity pays varies with the donor’s age. Younger donors receive smaller payments because they presumably will live longer than older ones. The charity receives the remainder — or “residuum” — of the initial gift, usually upon the donor’s death.

The American Council on Gift Annuities recommends gift-annuity payout rates to charities, setting its recommended rates at levels that are designed to give charities a 50-percent residuum.

In recent years, however, charities have retained amounts far greater than half of donors’ initial annuity contributions, according to the survey. In 1999, charities received an average residuum of 97.5 percent, compared with 94.6 percent in 1994.

Frank Minton, a planned-giving consultant in Seattle who directed the survey for the council, attributed the higher figures to the recent strength of the stock market, which has helped charities earn higher returns on annuity assets.

At last week’s meeting, the council left unchanged its recommended gift-annuity payout rates.

The survey also details the investment practices of charities that hold gift-annuity assets.

Nearly 40 percent of such assets were invested in stocks in 1999, and 43 percent were invested in government, corporate, or other bonds, the survey found. The remainder was in cash instruments and other investments.

In addition, the survey found that an increasing number of charities are turning to outside investment managers to invest their gift-annuity assets. In 1994, about 15 percent of assets were invested solely by outside managers, another 15 percent were invested with help from outside managers, and approximately 70 percent were invested solely by managers who were employed by the charities.

But in 1999, charity-employed managers were the sole investors of only about 22 percent of gift annuity assets. More than 55 percent of assets were handled exclusively by outside investment managers, and roughly 23 percent were invested with help from outsiders.

Charities that use outside investment managers to invest their gift-annuity assets consistently have higher returns than those that handle such investments themselves, according to the survey. Over the past 10 years, it said, outside managers generated returns that were 1.5 percentage points higher than those generated by investment managers who worked for charities, the survey said. “Thus, with external managers, a charity may have better results even after paying investment-management fees,” the survey added.

The survey results, which are based on responses from 800 charities, were released at the council’s 24th national meeting, in St. Louis. In other business, Clinton Schroeder, a Minneapolis estate-planning lawyer, was elected chairman of the council.

Copies of the “1999 Survey of Charitable Gift Annuities” are available from the American Council on Gift Annuities, 233 McCrea Street, Suite 400, Indianapolis 46225. For information on the per-copy cost, call (317) 269-6271.