JAMES MADISON UNIVERSITY FOUNDATION
POLICIES AND PROCEDURE
Life Income Agreements
POLICY # G101-a
APPROVED: January 27, 1999
POLICY: The James Madison University Foundation accepts and manages approved life income agreements that are designed to support programs of James Madison University. A written plan is necessary for the prospective donor to the University; to provide guidelines for the professional staff, to insure protection of the University, and to provide assurance and confidence to a donor who wishes to see a policy statement in writing.
1. All assets received from life income agreements are used to fulfill the terms and conditions of the agreement.
2. Types of Life Income Gifts The James Madison University Foundation encourages development officers to solicit gifts through life income agreements. The following are some common examples:
a. Charitable Gift Annuities - The donor irrevocably transfers to James Madison University Foundation readily marketable assets (or other assets) in return for James Madison University Foundation's agreement to pay the donor (and/or other beneficiary) a fixed annuity for life (lives), or for a fixed term not to exceed 20 years. Gift annuity rates are based upon rates recommended by the American Council Committee on Gift Annuities: the starting date may be deferred. At the death(s) of the donor (and/or other beneficiary) the remainder interest becomes the property of the James Madison University Foundation.
b. Charitable Remainder Trusts - The donor irrevocably transfers readily marketable assets or other assets to the James Madison University Foundation (trustee), and receives fixed annual payments of at least 5% of the initial value of the trust assets in the case of annuity trust, or at least 5% of the value of the trust assets as valued annually in the case of an unitrust to one or more beneficiaries for their lives or a term not to exceed 20 years. Additions may be made to a charitable remainder unitrust at any time. The suggested pay out rate should be in the range of 5 7% or based on the return of the long term treasury bond. Negotiated rates must be approved by the James Madison University Foundation President. At the death of the donor and/or other income beneficiary, if named, the remainder interest becomes the property of James Madison University Foundation.
3. Disclosure The development officer is responsible for providing the donor with all mandatory disclosure requirements regarding planned giving agreements prior to closure. The objective is to insure that the prospective donor understands the nature of the planned gift. When required, agreements should have specific language showing compliance with state regulations.
4. Spousal Consent In order to respond to changes brought about under the Augmented Estate rules in Virginia, New York, and similar legislation elsewhere, the development officer should seek to have the spouse of the prospective donor from Virginia indicate his/her awareness of, and provide written consent to, an irrevocable charitable gift of $100,000 or more. This should be accomplished by adding a signature line to the gift agreement. Although an effort should be made to obtain this consent, the development officer should suggest, not require, that the spouse's signature be added to the gift agreement.
5. The Use of Legal Counsel - The James Madison University Foundation shall seek the advice of legal counsel in all matters, including the laws in the donor's state of residence, pertaining to life income agreements and shall execute no agreement, contract, trust or other legal document with any donor without the advice of legal counsel. Further, all prospective donors shall be advised, and in all cases urged, to seek the counsel of their attorney and/or their financial advisor in any and all aspects of a proposed life income agreement.
6. Donor Legal Expenses It is the policy of the James Madison University Foundation not to pay for any of the prospective donor's legal expenses or appraisal expenses associated with the gift transaction. Because there is an inherent conflict of interest, the prospective donor should be so advised of the policy. In some unusual cases where the donor refuses to cover the legal fees associated with the gift and it is likely that the gift may fail as a result, the development officer should do his/her best to negotiate fees to the lowest level possible and then ask James Madison University Foundation to pay for the donor's legal expenses. If an agreement is reached, invoices for the legal services will be forwarded to The James Madison University Foundation for immediate payment. The development officer will advise the donor in writing that payment of the legal expenses by the charitable organization constitutes a "Quid pro quo" arrangement and that the Internal Revenue Service will expect that the amount of the charitable deduction taken by the donor for the gift will be reduced by the amount of the legal expenses paid in conjunction with the gift.
7. Investment of Assets from Life Income Agreements The assets received from life income agreements are to be placed in the James Madison University Foundation consolidated investment fund which has stated investment objectives. The fund managers are semi-annually evaluated by an independent investment consultant. The James Madison University Foundation primary investment policy will provide general expectations and constraints for each life income agreement. Addenda may be attached to enumerate any considerations unique to any one "life income agreement". It is the responsibility of the James Madison University Foundation to comply with all laws governing the co-mingling of funds. The Philanthropy Protection Act of 1995 requires that James Madison University Foundation provide donors establishing life income agreements, with written information describing the material terms of the operation of its collective funds in which the assets of life income agreements may be invested.
8. Compliance It is the responsibility of the James Madison University Foundation to comply with all applicable Federal and State laws governing "life income agreements". Virginia law requires James Madison University Foundation to have a minimum of $100,000 in unrestricted cash, cash equivalents, or publicly traded securities, excluding the assets contributed by the donor in return for the gift annuity agreement. The James Madison University Foundation requires that $100,000 of unrestricted net assets, plus an amount equal to 10% of the initial value of the agreement's assets, be separately designated as "Life Income Agreements reserve" in net assets.
9. Accounting, Tax Preparation, and Donor Reports It is the responsibility of the James Madison University Foundation to provide accounting for trust transaction and to file required Federal and State tax reports. Additionally, the James Madison University Foundation is responsible for providing informational tax forms and financial reports to the donor.
10. Fees The James Madison University Foundation may receive fees to cover the administrative expenses associated with a life income agreement. The prospective donor will be made aware of any fees in the appropriate disclosure statement presented to the donor by the development officer. Management fees charged by investment managers will be charged against the income of the portfolio.
11. Restrictions on the Residuum Any restriction on the use of the remainder interest should be clearly stated in the agreement. The use must benefit James Madison University and meet the approval of James Madison University and James Madison University Foundation.
12. Gift Amounts Gift amounts received should not be less than the amounts set forth below:
a. Charitable Gift Annuity $ 10,000
b. Charitable Remainder Unitrust $100,000
c. Charitable Remainder Annuity Trust $100,000
13. Approvals All agreements shall require the approval of the President of the James Madison University Foundation. Proposed agreements that deviate from these procedures
(i.e. negotiated payout rate, etc.) require the approval of the Executive committee.
14. Conflict of Interest - In all matters involving donors or prospective donors, the interest of the donor shall come before that of the University or the James Madison University Foundation. No program, trust, contract or commitment shall be urged upon any donor or prospective donor which would benefit the institution or the James Madison University Foundation at the expense of the donor's interest. No agreement shall be made between the James Madison University Foundation and any agency, person, company or organization on any matter whether investments, management or otherwise which would knowingly jeopardize the donor's interest.
15. The Use of Legal Counsel The James Madison University Foundation shall seek the advice of legal counsel in all matters pertaining to its estate planning and bequest program and shall execute no agreement, contract, trust or other legal document with any donor without the advice of legal counsel. Further, all prospective donors shall be advised, and in all cases urged, to seek the counsel of their attorney in any and all aspects of a proposed gift, whether by bequest, trust agreement, contract, or other arrangement. They shall particularly be advised to consult their attorney on all matters relating to the tax liability of a Life Income Agreement.