Friday April 26, 2024
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8.1.2 State Registration Compliance
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Complying with Gift Annuity Regulations: Once a gift annuity program is selected, compliance with the applicable state legal requirements for issuing gift annuities is necessary.
Once a gift annuity program is selected (see 8.1.1), compliance with the applicable state legal requirements for issuing gift annuities is necessary. If your organization has received an exemption letter from the IRS, it is already qualified to solicit and accept deductible gifts for federal tax purposes and so may use those gifts to establish annuities on behalf of donors. However, while federal gift annuity regulation is limited, oftentimes state regulation is not. States are increasingly regulating the issuance and administration of gift annuities.
Complying with State Regulations
Complying with state law is imperative as many state statutes specifically prohibit the issuance of charitable gift annuities prior to obtaining a permit or license from the state, notifying the state or at least meeting certain statutory requirements. Generally, determining which state law applies comes down to a question of residency. If your organization, the donor and annuitant reside in the same state (State A) the law where all three reside applies (State A). If your organization is located in State A but both the donor and annuitant reside in State B, the general consensus is that the law of State B applies. For other situations, determining which state law applies can be somewhat difficult as the law is not settled in this area. For these kinds of situations, please contact Crescendo or qualified counsel.
Approximately 11 states and one U.S. Territory require your organization to submit an application for a permit or license to issue gift annuities in their jurisdiction ("registration" states). About half of the remaining states require that your organization meet statutory requirements and then notify the state, usually the insurance department, of your organization's intent to issue annuities in that state ("notification" states). Most of the other states impose lesser degrees of regulation, where the issuance of charitable gift annuities is exempt from regulation under the state insurance laws as long as certain statutory conditions are satisfied and do not require notification ("conditional exemption" states). Still, a few other states provide no express guidance or requirements at all ("silent" states). For a map with detailed information on gift annuity state regulation by state, complete with statutory links, see Crescendo's CGA State Regulations Page. If you would like assistance with this complicated process, please contact Crescendo.
Compliance in Regulated States: "Gift Annuities 1-2-3"
Of the states that are considered highly regulated, the application process for a gift annuity permit or license can be long, arduous and confusing. Many of these states have strict requirements for maintaining segregated reserve funds and investment pool restrictions, but the requirements vary greatly by state. The application usually involves the submission of very detailed information and evidence regarding your organization's structure, finances (usually audited reports), management personnel, tax returns, proposed gift annuity advertising materials, gift annuity agreements and so on. In addition, many of the highly regulated states require annual reporting once a permit or license is obtained. You may wonder how charities manage to navigate the regulation process on their own. Some charities do attempt to complete these applications, but most have help with this confusing process.
While it is possible for your organization to complete an application for a permit and provide all of the supporting documentation to the regulated states, Crescendo can complete this step for your organization at a cost and help obtain the state permit quickly using our Gift Annuities 1-2-3 Services. The time for state approval once a completed application is submitted varies between a month to a full year. Crescendo fees range from $350 to $550 per state depending on the difficulty. State application fees range widely from $0 in states such as Maryland to approximately $4,233 in California.
Of the approximately 15 states that require notification ("notification" states), a letter stating your organization's intent to issue gift annuities in that state is required. Once statutory minimums are satisfied, a few of these states also require supporting documentation that your organization meets the statutory minimums. The letters are generally due either on the date your organization issues its first annuity agreement in the state or within 90 days of doing so. Again, your organization can prepare these letters itself, or Crescendo can prepare all 15 letters for one $150 fee, saving both time and money. Generally, these states do not impose any notification fees. Crescendo's 15 letters have already been pre-approved in each respective state and contain due dates and instructions regarding any required supporting documentation.
Of the rest of the states, the "conditional exemption" and "silent" states in which no interaction with the state is required, consult the state statutes to determine if your organization qualifies. Crescendo's CGA State Regulations Map provides detailed information on each state and includes links to most of the statutes. Crescendo staff provides free consultations regarding these state requirements and therefore, no Crescendo fees apply with regard to these states. Additionally, because the states do not require any submissions or notifications, there are no state fees, either.
If your organization needs extra help complying with registration states or notification states, contact Crescendo's attorneys at (800) 858-9154.
How to Choose Whether to Issue Gift Annuities in a Particular State?
How does your organization decide whether to issue gift annuities in a particular state. Ideally, your organization would like to be qualified in all 50 states so as to have the ability to issue a gift annuity in any situation. However, this might not be the best plan for your organization. For example, the cost of obtaining a permit or license, maintaining a segregated annuity fund and complying with detailed annual reporting requirements in State A might outweigh the benefits to your organization if the vast majority of its donors actually reside in States C & D. Of course, if your organization decides not to obtain a permit in State A, and next year is approached about a $200,000 gift annuity from an individual residing in that state, your organization will not be in a position to honor the request. An application for a permit must be submitted first and approval may take a month to a year, depending on the state. Keep in mind that once a permit or license is granted, some states require the annual reports and fee to be submitted even if an organization does not have any outstanding annuities.
A good approach is to start looking at the requirements of the states in which your organization is most likely to close gift annuity agreements and begin qualifying in those among them that are least regulated. Conditional exemption and silent states usually have the requirements that are easiest to meet, so presumably your organization could start issuing annuity agreements in these states as quickly as your organization complies with the statutory minimums. Keep in mind that the statutory minimums vary (consult Crescendo's CGA State Regulations Page). The next step would be qualification in the notification states by satisfying the statutory minimums and submitting the notification letter along with any required documentation by the due date. Here, too, statutory minimums vary.
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