Leading Age – June 12, 2013
Diana JamisonWilliam Altavilla
William McMorran
Planned Giving Risk Management for CFOs
JTMH/JTM/ESCJTMH founded in 1963 & opened Canterbury WoodsIn 1965, Episcopal Senior Communities (ESC) was formed
Canterbury Woods transferred 5 more CCRC communities were added; St. Paul’s Towers, Los Gatos
Meadows, Spring Lake Village, San Francisco Towers, Webster House6 affordable communities; Oak Center Towers, Presidio Gates, Jennings
Court, and Lytton Garden Communities
2002 ESC formed Episcopal Senior Communities FoundationPrimary purpose is to raise funds for ESC communitiesAdminister those funds for the needs of the communities & its residents
JTM/Episcopal Senior Communities6 Continuing Care Retirement Communities, with the
following accommodations1,025 Independent Living95 Assisted Living10 Memory Support376 Skilled Nursing
Affordable Housing accommodations626 Independent Living50 Assisted Living
Home and Community Based Services ProgramsSenior Produce Markets, Senior Resources, Senior Center Without
Walls, Affordable Housing ProgramsServicing over 11,000 seniors in 6 countiesWith over 700 volunteers
Episcopal Senior Communities Foundation (ESCF)
Created in 2002Outright gifts in FY 2013 = $1,150,77677 CGA contracts = $2,693,94611 CRT agreements = $3,261,566Second annual Celtic Cup net proceeds of $101,000
golf tournament with 27 foursomesFashion show luncheon featuring Eileen Fisher designs
Supports resident assistance and our outreach programs
Wills and Estates
Since 2000 we have had approximately 50 gifts from Wills and/or Estates
Totaling over $2,000,000
With an average gift amount of $43,000
Purpose of gifts range from General Community Funds to Capital projects
Managing CGA RiskCA department of Insurance regulations
Establish Reserve fund with investment restrictionLarge cap equities, government backed bonds
10/90 until 2005 After 2005 DOI amended to 50/50
ESCF’s Investment Policy is 30/70Average 60.4% of original gift at maturityNet amount $869KAverage gift size $37K
Protecting CGA Risk ExposureFollow ACGA rates
Rates designed to result in residuum of ≥ 50%Minimizes/relieves need for actuaries
PPA DisclosuresTo be provided to prospective donor in advance of giftContain information about the gift annuity & issuing charity
Monitor market values/exposure quarterlyCFO reviewInvestment Committee
Market new gifts steadilyEnsure that staff and operations meet all regulatory
requirements
Protecting CRT Risk ExposureFocus on Unitrusts over Annuity trusts
Use outside counsel for legal documentsAvoid generic fill-in formsDocument needs to support the plan
Make sure that donor uses own advisorsEnsure that donors requirements are met
Document everything
Summary of Risk ManagementBasic story and outreach is compellingFocus on “plain vanilla” gifts
Most accepted are cash and securitiesAvoid “hard-to-sell”
Do them wellGood system in placeDonors are satisfiedGood stewardship
Protect the Foundation’s multiple liabilitiesBoard fiduciary responsibilitiesLegal responsibilitiesTax reporting requirementsTimely distribution of information
Core Principals
• Donative Intent
• Primacy of Donor(s) needs
• Timeliness of Response
Responsible stewardship
Defining Risk
Legal Issues with EstatesInurement / Undue influenceTax/AuditInvestment RiskFiduciary OversightEnvironmental Pushing the Envelope
Legal Issues with Estates
Irrevocable pledges against the estate
Do you always request special notice?
Where is the progress/distribution tracked?
Are you willing to go to court?
Inurement & Undue Influence
A benefit to the donor or the Community?
Donor’s ability to make decision?
Appropriate safeguards?
Tax and Audit Risks
Make sure that donors receive accurate 1099s and K-1s ASAP – Save time and calls
File all reports timely
What will the auditors ask?
What will the auditors say?
Investment Risk - CRTs
You are not at risk the same as with CGAs
CRUTs should never exhaust themselves
Hard to manage CRUT donor expectations
CRATs can and DO exhaust themselves
CRUTs vs. CRATS
CRUT pays a fixed percentage, re-calculated annually. This offers inflation protection
CRUT payout must allow a 10% charitable deduction
CRAT pay a fixed amount based on initial gift value.CRAT payout must have less than 5% chance of
exhaustion
The Perfect CRUT Story*
Resident donated appreciated bonds = $100K to an 8% CRUT in 1990
One year she received 8% of $92,000
One year she received 8% of $154,000
At her death in 2009, gift was $114,000 *Past performance no indicator of future results and the experience in one case is not representative of all cases
CRT Investment Considerations
Balance income to donors with future value to Community
Generally a 60/40 allocation is good
Other considerations (high payout or FLIP) may influence specific gift management
Investment Risk - CGAs
Is there a clear investment policy?
Are there state-specific requirements?
Do you meet all your states’ requirements?
It’s your $$ if contract zeroes out
How It’s Supposed to Work
ACGA model is 45/50/5
Expected return is 4.25%
Assumption of 1% for investment/admin
Rates project a 50% residuum
Sample CGA Results ‘02-’12*
1. 44.59% $27,7712. 48.89% $51,4003. 60.47% $37,8394. 58.5% $13,7505. 80.08% $50,1976. 20.41% $19,822**
** Long-term problems now corrected
*Past performance no indicator of future results
Impact of Al location over Time*
Alloc 3 Yr Return Incep Incep Yr
40/55/5 4.56 8.61 2009 30/70 2.65 3.17 2002 50/50 3.49 4.18 2002 10/90 3.10 3.60 2002 10/90 2.96 3.75 2002 10/90 3.72 3.54 2002
*Past performance no indicator of future results
Returns shown net of fees
Refundable Deposits
Can you create new gifts?
Variety of opportunities including:
- Outright gift
- Testamentary Gift
- Gift creating a CGA
Devil in the Details
Reality hinges on several factors including:
Initial contract and bond covenants
Formulas for discounting NPV
Depositor interest
Cost of $$
Expectancy for Female aged 80
Pick What’s Best!
• SOA Annuity 2000 w/ 1% Decline 11.9• SOA Annuity 2000 w/o 1% 11.3• IRA Uniform Table 10.2• CGA Annuity Table 9.5• SSA Expectancy w/ 1% Decline 9.3• SSA Expectancy w/o 1% Decline 8.9
Actuarial Evaluation for 8283????
Fiduciary Oversight
Fundraisers and CFOs talk different languages
Board members have high expectations
Keeping up with donors can be difficult
Testing innovative strategies with gift models
Pushing the Envelope
Getting gifts at any cost or payout
Encountering environmental problems
Deal making
Losing sight of mission