This document summarizes a presentation about accounting for planned giving programs. It discusses the importance and challenges of these programs, as well as providing an overview of common planned giving instruments and key accounting considerations. Planned giving programs can include wills, trusts, and other agreements that allow donors to make future commitments to non-profits. Proper accounting requires determining whether agreements are revocable or irrevocable, and if the non-profit acts as a trustee for assets or simply receives a beneficial interest.

1. Accounting for Planned Giving
Programs
PRESENTED BY KEN YOUNGSTEAD, CPA
OCTOBER 7, 2014

2. OBJECTIVES OF THIS SESSION
 Background and the increased importance of
planned giving programs
 Internal challenges that exist with these
programs
 Common types of planned giving programs –
related accounting issues
2 #bbcon

3. BACKGROUND
What are planned giving programs?
 Wills, Estates, Testamentary Bequests
 Split Interest Agreements
 NFP receives benefits that are shared with other
organizations or beneficiaries
 Beneficial Interest Agreements
 NFP may be the sole beneficiary
 Accounting and recognition criteria is very similar
3 #bbcon

4. BACKGROUND
Why establish a planned giving program?
 Creative strategies exist
 Giving from assets vs. Giving from income (cash)
 Variety of tools available to accomplish donor’s goals
 Long term buy in from donors – highly committed people to
your mission
 Likely to give annually as well (invested)
 Impact from larger gifts can be meaningful
 Over the long term – major impact on sustainability
4 #bbcon

5. CHALLENGES
Planned giving programs can be complex
 Bridge between development department and
accounting department is critical
 Most instances – information is relayed to development
departments
 Key information for development differs from key
information for accounting
 Best practices are not widely published
 Gift acceptance policies
 Do you have a gift acceptance policy
5 #bbcon

6. CHALLENGES
Gift Acceptance Policies
 Does your organization have a policy?
 Some help is not helpful
 Do you accept real estate? What if a donor wants to give
you that awesome timeshare (that’s basically worthless)?
 Do you manage the administration of the gift – and are
you ready for that responsibility?
 Restrictions on the gift can provide unintended results
 Include a policy on disposition of certain gifts to avoid
issues
6 #bbcon

7. CHALLENGES
Be careful giving legal or tax advice
 You should have legal counsel available to you to assist
with issues related to planned giving
 Particularly important when making the “Ask”
7 #bbcon

8. ACCOUNTING
Examples of Planned Giving Instruments
 Wills / Bequests
 Charitable Lead Trusts / Remainder Trusts
 Beneficial Interest Agreements
 Charitable Gift Annuity
 Trust Agreements
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9. ACCOUNTING
Key takeaway from this session
Revocable vs. Irrevocable
 Revocable agreements are “intentions to give” and
are generally not recorded
 Irrevocable agreements are “promises to give” and
are generally recorded
Ensure your Development Professionals are aware
of this important distinction
9 #bbcon

10. ACCOUNTING
Wills / Bequests
 Major opportunity in planned giving programs
 Most traditional bequests are unknown to the NFP
prior to the donor’s death
 Wills are generally revocable documents (they can
be changed)
 May contain surprise restrictions (i.e. Endowment
Gift - but you don’t have a formalized Endowment
Fund)
 Record a receivable when a will becomes valid
(court says “This is the will”)
10 #bbcon

11. ACCOUNTING
Wills / Bequests (continued)
 Communication is key
 Internal communication – tracking these gifts can be
difficult
 Estates can take a long time to settle – how do you
estimate and value your gift
 Can include real estate, illiquid investments, personal effects
11 #bbcon

12. ACCOUNTING
Wills / Bequests (continued)
 Dealing with the family
 Family members may deal with surprises and can
contest
 Legal assistance may be necessary to maintain the
interest of the Organization
 Organization can be in a difficult position
 It can get expensive to protect your interest
12 #bbcon

13. ACCOUNTING
Wills / Bequests (continued)
 Valuation of the estate (or your interest)
 What do you record (GAAP requires that a contribution be
recorded when the will is validated)
 Is adequate information available? Do your best to gather the
appropriate facts. Update them regularly. You need a place to
keep contemporaneous notes.
13 #bbcon

14. ACCOUNTING
Wills / Bequests (continued)
 Financial Statement Preparation Tip:
 Update your information for certain events you become aware of
after year end – The rule on subsequent events follows:
Subsequent events that provide additional evidence about conditions that existed
at the balance sheet date, including estimates that are inherent in preparing
financial statements, should be recognized in the financial statements.
Subsequent events that provide evidence about conditions that did not exist at
the balance sheet date should not be recognized in the financial statements.
14 #bbcon

15. ACCOUNTING
Beneficial Interest or Split Interest Agreements
 Key Accounting question – Is the Organization the trustee
of the assets?
 If so – the Organization has cash or investments – if not,
Organization has an interest in a stream of payments.
 For split interest agreements (lead or remainder trusts),
Organization may have a liability to record.
 Watch for an irrevocable trust funded by a will - the donor
can still change the will during his / her lifetime (thus, not
currently recognized)
15 #bbcon

16. ACCOUNTING
Organization is Trustee
 Record the assets of the trust at fair value along with
contribution revenue at its inception
 Record a liability for amounts held for others based on the
trust term and present value of the stream of payments to
be paid (this could be a lead interest or remainder interest)
 Use a discount rate appropriate for the risk involved.
16 #bbcon

17. ACCOUNTING
Organization is Trustee (continued)
 Key point – you should prudently manage the assets held.
You could be at risk if you are overly aggressive or lack
diversification with your portfolio
 Terms of the payment obligation can be fixed or variable
– making it especially important to assess and properly
discount the stream of payments
 Know about state laws governing annuity contracts if you
are marketing these programs
17 #bbcon

18. ACCOUNTING
Organization is Trustee (continued)
 Organization can be the income (lead) or remainder
beneficiary
 Could be a fixed term, or could be based on a beneficiary
life expectancy (do you have the information needed?)
 In some instances, the agreement can be a revocable
agreement in which case, there is a refundable advance to
record for the Organization’s interest
18 #bbcon

19. ACCOUNTING
Organization is not the Trustee
 Present value the expected stream of payments based on
an appropriate discount rate
 Key issue – access to information to assist in
determination of fair value
(Donor may refuse to provide access to information like
investment statements)
19 #bbcon

20. ACCOUNTING
Organization is not the Trustee (continued)
 Generally, for beneficial interests in trusts, the
Organization can record the interest based on the value
of assets in the trust
 Trust terms could call for delayed payments
 Trustee can determine when distributions could be made (and
how much)
20 #bbcon

21. ACCOUNTING
Other Financial Statement Considerations
 Temporary and Permanent Restrictions
 Perpetual trusts are permanently restricted
 Lead and remainder trust interests are time restricted
(temporarily restricted)
 Agreements may dictate how earnings or distributions are to
be spent
21 #bbcon

22. ACCOUNTING
Other Financial Statement Considerations
 Fair Value Disclosures
 The trust itself is the unit of account (don’t look through to the
investments)
 Most cases, if you are discounting cash flows to present value,
it’s a Level 2 valuation
 If there is never access to the assets (such as a perpetual trust),
it’s a Level 3 valuation
22 #bbcon

23. ACCOUNTING
Other Financial Statement Considerations
 Financial statement disclosures should include:
 Summary of terms
 Basis used for recording assets (i.e. cost, fair value)
 Discount rate assumptions
 Any limitations imposed by state laws
23 #bbcon

24. ACCOUNTING
Two Excellent Resources
 The AICPA Audit and Accounting Guide has a section
dedicated to Beneficial Interest / Split Interest
Arrangements (journal entry examples are excellent)
 AICPA Financial Reporting Whitepaper – Measurement
of Fair Value for Certain Transactions of Not-for-Profit
Entities
24 #bbcon

25. Planned Giving can make a
tremendous impact on your NFP’s
long term sustainability – Are you
making the ask?
#bbcon
25 #bbcon
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26. Thank you
Ken Youngstead
KraftCPAs PLLC – (615) 782-4246
kyoungstead@kraftcpas.com
Nashville, TN
www.kraftcpas.com
26 #bbcon

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27 #bbcon