Colleges and universities have become more comfortable over the past several years with using gift annuities as a funding source.
A gift annuity allows the college to secure a lump sum donation from a donor. In exchange, the donor receives lifetime income payments from the college.
The ability to donate a lump sum while maintaining a source of income from those funds can be very attractive to the donor.
This charitable donation funding approach has been growing steadily over the past several years:
The use of gift annuities among charities and colleges has steadily grown in the past several years, according to the American Council on Gift Annuities. In a 2004 survey of nearly 830 charities, about one quarter said they had started a gift annuity program in the past five years. The size of the gifts has also increased, climbing from an average of $30,182 in 1999 to $59,926 in 2004, the survey found.
However, the financial crisis has complicated the gift annuity picture for many educational institutions:
Annuity experts have long advised charities to play it safe with investing these gifts, precisely because the payments extend for periods that aren’t precisely predictable. Several states even have rules that govern how annuities can be invested. Despite that advice, however, some college investment managers may now have learned the hard way about investing annuities with caution, according to Frank Minton, senior advisor for PG Calc, which advises charities and colleges on planned giving.
Source: Inside Higher Ed
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