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Annuities & Trusts: Critiquing old friends at a crucial time

Annuities & Trusts: Critiquing old friends at a crucial time. Keith Barber Abraham Baldwin Agricultural College NAADA Conference,: Building Bridges June 14-17, 2009. Where does your institution stand?. Think outside the box. What box?. Historically Speaking…. Annuities Dependable

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Annuities & Trusts: Critiquing old friends at a crucial time

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  1. Annuities & Trusts: Critiquing old friends at a crucial time Keith Barber Abraham Baldwin Agricultural College NAADA Conference,: Building Bridges June 14-17, 2009

  2. Where does your institution stand? Think outside the box. What box? Building Bridges - NAADA '09

  3. Historically Speaking… • Annuities • Dependable • Tax benefits • Win/Win • % return to donor • $$ to NP • Solid • Good for business • Charitable Trusts • Dependable • Tax benefits • Win/Win • % return to donor • $$ to NP • Solid • Good for business Building Bridges - NAADA '09

  4. Today’s Market… • Annuities • Liability with NP • Risky for NP • Guaranteed Returns • Life Expectancy • Charitable Trusts • Remains outside NP • Rides the Wave • Can Run Dry Building Bridges - NAADA '09

  5. Alternatives… • Annuities • Increase age limit • Increase minimum of annuity • Minimum residual • More in reserve • Reinsurance • Trusts • Lead Trusts • “Hurdle rates” Building Bridges - NAADA '09

  6. Reinsurance… Programs Donor $100,000 Institution $50,000 to programs in 15 years (donor’s life expectancy) if investments perform as anticipated $6,700 annually for life The present value of $50K at the end of the 15th year is $24,900. • Institution retains investment risk • Institution retains longevity risk • Institution typically cannot access cash until death of donor Building Bridges - NAADA '09

  7. Reinsurance… Programs Donor $100,000 Institution $38,000 to programs now $61,900 premium $6,700 annually for life Reliable Company $6,700 annually during donor’s lifetime • Institution transfers investment risk • Institution transfers longevity risk • Institution may be able to access cash immediately The $38K is 53% more than the present value of what is hoped for with typical arrangement. Building Bridges - NAADA '09

  8. Reinsurance Wins • Positives • Cash to NP now • No worry for cash flow to donor • *must partner with a reliable source! • Negatives • Risk of losing $ in long run http://newsroom.bankofamerica.com/index.php?s=23&item=105 http://online.wsj.com/article/SB124208562045708743.html http://www.acga-web.org/ Building Bridges - NAADA '09

  9. What now… • Annuities • Depends on your reserves • Multiple annuities from donor • Leads to bequests • Charitable Trusts • Why not? Building Bridges - NAADA '09

  10. Annuities & Trusts: Critiquing old friends at a crucial time Keith Barber Abraham Baldwin Agricultural College NAADA Conference,: Building Bridges June 14-17, 2009

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