ASC 958-30: Split-Interest Agreements

"General

958-30-05-1 This Subtopic provides guidance for reporting arrangements under which a not-forprofit entity (NFP) shares the benefits of assets with other beneficiaries (a split-interest agreement). Those other beneficiaries generally are not NFPs. For example, a donor may give an NFP the right to receive all or a portion of the specified cash flows from a charitable trust or other identifiable pool of assets that is held either by the NFP or by an unrelated third party (such as a bank, trust company, foundation, or private individual).

958-30-05-2 If the NFP shares the cash flows with another beneficiary, that agreement is subject to the guidance in this Subtopic.

958-30-05-3 If the NFP controls the rights to all of the specified cash flows from the trust or other identifiable pool of assets, the agreement is subject to the guidance in paragraphs 958-605-25-28 through 25-30.

> General Structure

958-30-05-4 Split-interest agreements are agreements in which donors enter into trusts or other arrangements under which an NFP receives benefits that are shared with other beneficiaries that generally are not NFPs. A typical split-interest agreement has the following two components:

a. A lead interest

b. A remainder interest.

958-30-05-5 The lead interest is the right to the benefits (cash flows or use) of assets during the term of the split-interest agreement, which generally starts upon the signing of the agreement and terminates at either of the following times:

a. After a specified number of years (period-certain)

b. Upon the occurrence of a certain event, commonly either the death of the donor or the death of the lead interest beneficiary (life-contingent).

The remainder interest is the right to receive all or a portion of the assets of a split-interest agreement remaining at the end of the agreement’s term."

"958-30-05-6 Split-interest agreements can take any one of the following forms:

a. Charitable lead annuity trust

b. Charitable lead unitrust

c. Charitable remainder annuity trust

d. Charitable remainder unitrust

e. Charitable gift annuities

f. Pooled income funds.

958-30-05-7 The terms of some agreements do not allow donors to revoke their gifts; other agreements may be revocable by donors in certain situations. This Subtopic addresses the accounting for both revocable and irrevocable split-interest agreements.

958-30-05-8 The donor may transfer the assets to an unrelated third party (such as a bank, trust company, foundation, or private individual) or may give the NFP the right to control the contributed assets by either of the following:

a. Naming the NFP as trustee of the trust holding the assets

b. Granting the NFP the right to hold the assets as general assets of the entity.

This Subtopic addresses the accounting for all of those situations.

Charitable Lead Annuity Trusts and Lead Unitrusts

958-30-05-9 Assets such as cash or shares of stock are contributed by the donor either to the control of the NFP through its role as trustee of a trust holding the assets or to a third-party trustee. The NFP receives periodic cash payments (the lead interest) that are either a fixed dollar amount (an annuity trust) or a specified percentage of the fair value of the assets as of the beginning of each period (a unitrust). Some of the assets may need to be liquidated to make the required payments. At the termination of the agreement, the remaining assets revert to the donor or the donor’s beneficiary (the remainder interest).

Charitable Remainder Annuity Trusts and Remainder Unitrusts

958-30-05-10 Assets such as cash or shares of stock are contributed by the donor either to the control of the NFP through its role as trustee of a trust holding the assets or to a third-party trustee. The NFP (or the trust) makes periodic payments to the donor or the donor’s beneficiary that are either a fixed dollar amount (an annuity trust) or a specified percentage of the fair value of the assets during the term of the agreement (a unitrust). Some of the assets may need to be liquidated to make the payments. At the termination of the agreement, the remaining assets revert to the NFP.

Charitable Gift Annuities

958-30-05-11 A charitable gift annuity is an arrangement between a donor and an NFP in which the donor contributes assets to the NFP in exchange for a promise by the NFP to pay a fixed amount for a specified period of time to the donor or to individuals or entities designated by the donor. The agreements are similar to charitable remainder annuity trusts except that no trust exists, the assets received are held as general assets of the NFP, and the annuity liability is a general obligation of the NFP.

Pooled Income Fund

958-30-05-12 Some NFPs form, invest, and manage pooled income funds. These funds are divided into units, and contributions of many donors' life income gifts are pooled and invested as a group."

"958-30-25-2 Revocable split-interest agreements shall be accounted for as intentions to give. Assets received by a not-for-profit entity (NFP) acting as a trustee under a revocable split-interest agreement shall be recognized when received as assets and as a refundable advance. If those assets are investments, they shall be recognized in conformity with Section 958-320-25 or 958-325-25, as appropriate. Contribution revenue for the assets received shall be recognized when the agreement becomes irrevocable or when the assets are distributed to the NFP for its unconditional use, whichever occurs first."

958-30-25-3 Under irrevocable split-interest agreements the assets contributed by the donor may be either:

a. Held by an NFP

b. Held by a third party.

Assets Held by an NFP

958-30-25-4 In the absence of donor-imposed conditions, an NFP shall recognize contribution revenue and related assets and liabilities when an irrevocable split-interest agreement naming it trustee or fiscal agent is executed. Assets received under those agreements shall be recorded when received. If those assets are investments, they shall be recognized in conformity with Section 958-320-25 or 958-325-25, as appropriate. The contribution portion of the agreement (that is, the part that represents the unconditional transfer of assets in a voluntary nonreciprocal transaction) shall be recognized as revenue or gain (see paragraph 958-30-45-7).

958-30-25-5 Paragraphs 958-30-25-6 through 25-15 provide guidance on the following types of donor agreements:

a. Split-interest agreements other than pooled income funds or net income unitrusts

b. Pooled income funds or net income unitrusts.

Split-Interest Agreements Other Than Pooled Income Funds or Net Income Unitrusts

958-30-25-6 If the split-interest agreement is other than a pooled income fund or net income unitrust (for example, a charitable gift annuity, a charitable lead trust, or a charitable remainder trust), the transferred assets, or a portion of those assets, are being held for the benefit of others, such as the donor or third parties designated by the donor. A liability for the future payments to be made to those other beneficiaries shall also be recognized at the date of initial recognition. See paragraphs 958-30-25-7 through 25-14 to determine whether the agreement contains an embedded derivative.

Pooled Income Funds or Net Income Unitrusts

958-30-25-15 The assets received from the donor under a pooled income fund agreement or a net income unitrust shall be recognized when received. An NFP also shall recognize its remainder interest in the assets received as contribution revenue in the period in which the assets are received from the donor. The difference between the assets recognized and the revenue recognized shall be recorded as deferred revenue, representing the amount of the discount for future interest."