Posts tagged ‘rate of return’

May 24, 2013

When is an Investment NOT an Investment?

If it looks like a duck, swims like a duck, and quacks like a duck, then it is probably a duck. But, not always.

If it looks like an investment, involves tax consequences like an investment, and produces a return like an investment, then it is probably an investment. But, not always.

So, when is an investment not an investment?

When it’s a Charitable Gift Annuity.

“A CGA is a contract (not a ‘trust’), under which a charity, in return for a transfer of cash, marketable securities or other assets, agrees to pay a fixed amount of money to one or two individuals, for their lifetime,” according to the American Council on Gift Annuities. 

Rubber Ducks by Felix63 via FlickrI’ll admit that CGAs do look a great deal like an investment vehicle. A CGA involves a proposal that contains an illustration of how the gift will work; it involves tax benefits; and, it involves a rate of return. It’s easy to see why donors and even many development professionals think of CGAs as an investment opportunity.

The ACGA Board of Directors voted recently to make no changes to the suggested maximum CGA return rates that originally became effective January 1, 2012. The current rate schedule will remain in effect until further notice. This news prompted a planned giving professional to post the following message on a listserv: 

We usually do a promotion to current annuitants and recent inquiries, when the new CGA rates get announced. Whether they go up or down, it’s a message I can easily work with (either promoting the new increased rates, or ‘act now before rates go down in July,’ etc.).

Not sure what to do since they are staying the same – they’re not so great that staying the same is anything to brag about. Just curious what others are doing, or if laying low on this and focusing promotions in other areas.”

That posting demonstrates that some development professionals tend to think of CGAs as investment vehicles rather than philanthropic instruments. There are a number of reasons why this is problematic:

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