There are a total of five split-interest agreements. A split-interest agreement represents trust or other arrangements with donors in which not-for-profit organizations receive benefits that are shared with other beneficiaries.
The first split-interest agreement is a charitable lead trust. This type of arrangement is one in which the donor establishes a trust where a portion of that trust is distributed to a specified not-for-profit entity for a certain terms. After the end of said term, any leftover of the trust assets are to be paid to the donor or the beneficiary. The NFP entity may or may not hold the trust assets. If the agreement is set and irrevocable, the assets received are recognized as a receivable at fair value and temporarily restricted revenue at present value of the receipts to be retained. Any year-to-year changes are recognized under an account: Changes in the Value of Split-Interest Agreements which are deductions or additions from the temporarily restricted net assets.
A second split-interest agreement is a perpetual trust held by a third party. It may not exactly fit the definition of a split-interest agreement but it is recognized and accounted for in the same manner. Any sort of anticipated receipts is recorded as an asset, usually at the fair value, and a contribution revenue in the permanently restricted net assets section. Again, any changes that need to occur are recorded as additions or deductions from the permanently restricted net asset class.
A third split-interest agreement is a charitable remainder trust. This is established by a donor to ensure that a specified dollar amount or a certain percentage of the trust's fair market value is paid to a beneficiary. At the end of the term of the trust, the trust principal is paid to the institution for unrestricted or temporarily restricted purposes or as an endowment (permanently restricted). The trust's assets are recorded at FMV, the present value of the amounts to be paid to the beneficiary are recorded as a liability, and the difference is recorded as contribution revenue in the appropriate net asset class.
A charitable gift annuity is the same as a charitable remainder trust except that no formal trust agreement exists. Instead, a contract is normally signed. The accounting is the same as the charitable remainder trust.
Pooled income funds are for situations where assets of several life income agreements are pooled together. Life income funds pay all of the income to a donor or beneficiary for their lifetime. At the end of the donor's life, the assets are passed to a non-profit organization for unrestricted or restricted purposes. The assets are recorded at their fair value at the time of entry. Revenue is recognized in the temporary restricted assets, discounted by the time period of the donor's expected life. The difference between the fair value of the assets and the revenue is recorded as deferred revenue, which will be equivalent to the discount for future interest.
The last split interest agreement is a pooled income fund. Represents when several assets with different agreements are pooled together. All of the income is paid to the donor over their lifetime. At the end of the donor's life, the assets go to the non-for-profit organization for either unrestricted or restricted purposes. The Assets are accounted for their fair value when the assets enter the pool. Revenue is recognized in the temporarily restricted net asset class. and discounted for the remaining expected life of the donor. The deferred revenue represents the amount of the discount for future interest.
There are a total of five split-interest agreements.
ReplyDeleteA split-interest agreement represents trust or other arrangements with donors in which not-for-profit organizations receive benefits that are shared with other beneficiaries.
The first split-interest agreement is a charitable lead trust. This type of arrangement is one in which the donor establishes a trust where a portion of that trust is distributed to a specified not-for-profit entity for a certain terms. After the end of said term, any leftover of the trust assets are to be paid to the donor or the beneficiary. The NFP entity may or may not hold the trust assets. If the agreement is set and irrevocable, the assets received are recognized as a receivable at fair value and temporarily restricted revenue at present value of the receipts to be retained. Any year-to-year changes are recognized under an account: Changes in the Value of Split-Interest Agreements which are deductions or additions from the temporarily restricted net assets.
A second split-interest agreement is a perpetual trust held by a third party. It may not exactly fit the definition of a split-interest agreement but it is recognized and accounted for in the same manner. Any sort of anticipated receipts is recorded as an asset, usually at the fair value, and a contribution revenue in the permanently restricted net assets section. Again, any changes that need to occur are recorded as additions or deductions from the permanently restricted net asset class.
ReplyDeleteA third split-interest agreement is a charitable remainder trust. This is established by a donor to ensure that a specified dollar amount or a certain percentage of the trust's fair market value is paid to a beneficiary. At the end of the term of the trust, the trust principal is paid to the institution for unrestricted or temporarily restricted purposes or as an endowment (permanently restricted). The trust's assets are recorded at FMV, the present value of the amounts to be paid to the beneficiary are recorded as a liability, and the difference is recorded as contribution revenue in the appropriate net asset class.
ReplyDeleteA charitable gift annuity is the same as a charitable remainder trust except that no formal trust agreement exists. Instead, a contract is normally signed. The accounting is the same as the charitable remainder trust.
ReplyDeletePooled income funds are for situations where assets of several life income agreements are pooled together. Life income funds pay all of the income to a donor or beneficiary for their lifetime. At the end of the donor's life, the assets are passed to a non-profit organization for unrestricted or restricted purposes. The assets are recorded at their fair value at the time of entry. Revenue is recognized in the temporary restricted assets, discounted by the time period of the donor's expected life. The difference between the fair value of the assets and the revenue is recorded as deferred revenue, which will be equivalent to the discount for future interest.
ReplyDeleteThe last split interest agreement is a pooled income fund. Represents when several assets with different agreements are pooled together. All of the income is paid to the donor over their lifetime. At the end of the donor's life, the assets go to the non-for-profit organization for either unrestricted or restricted purposes. The Assets are accounted for their fair value when the assets enter the pool. Revenue is recognized in the temporarily restricted net asset class. and discounted for the remaining expected life of the donor. The deferred revenue represents the amount of the discount for future interest.
ReplyDelete