Legislature(2001 - 2002)
05/04/2001 05:22 PM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 121-QUALIFIED CHARITABLE GIFT ANNUITIES
MS. AMY ERICKSON, staff to Representative Lisa Murkowski, explained
gift annuities as contractual agreements whereby a donor makes a
gift to a charity in exchange for a guaranteed annual income. This
benefits the donor by allowing them to not only make the gift but
also to receive a partial tax-free lifetime income. It benefits
charities as a means of raising funds. On average, the charitable
deduction equals one-half the gift.
HB 121 is modeled legislation that has been adopted by more than 30
other states. It defines charitable gift annuities and states that
they are not insurance. It also sets a $300,000.00 minimum
unrestricted cash requirement and limits the opportunity to
established charities that have been in operation for three years
or more.
Number 565
SENATOR THERRIAULT asked what would happen when the donor died.
MS. ERICKSON said all donors would have to have named a beneficiary
to the annuity and upon the donor's death they would receive the
money.
MS. GLORIA GLOVER, Chief Financial Examiner with the Department of
Community & Economic Development, testified that the Alaska
Division of Insurance supports the legislation. Although current
Alaska statute does not address this type of annuity separately,
gift annuities sold by charities meeting certain conditions are
exempt from insurance regulation. Charities must give notice to the
donor as well as the Division of Insurance when they begin issuing
these types of contracts. Alaska Division of Insurance provides no
information about the solvency or the product but there are
penalties for not issuing the required notices.
MR. DAVID G. SHAFTEL, Alaska Community Foundation (ACF) board
member, expressed general support for the bill but outlined one
concern. They are a relatively new non-profit foundation whose main
focus is to support and implement charitable giving in Alaska.
Although they are endowed for over one million dollars, they do not
have $300,000.00 in unrestricted cash and this would make them
ineligible to initiate a charitable gift annuity program.
He asked that the committee add a subsection that would allow one
charitable institution to guarantee annuity programs established by
another charitable institution such as the Alaska Community
Foundation. With that alternative, ACF and other new non-profits
could establish a program while also providing the security that
the Act requires.
CHAIRMAN TAYLOR asked whether he had specific language available
for the amendment.
Mr. Shaftel said he and Gloria Glover had discussed and agreed upon
specific language and Ms. Erickson should have it in her
possession.
CHAIRMAN TAYLOR said his staff would provide members with copies of
the proposed changes and the committee would return to the issue
after other testimony.
MR. JON CALDER, testified in support of HB 121. He wanted to
clarify that when a donor takes out a gift annuity they are paid a
lifetime income by the charity with which they took out the gift
annuity.
SENATOR THERRIAULT referred to supporting literature in the bill
packet that stated that, "In addition you will receive certain tax
advantages which make your gift even more valuable." He wanted to
know how the tax advantages of the gift accrue to the individual
donor.
MR. CALDER explained that when a person takes out a gift annuity
they get several benefits. The donor receives the benefit of giving
the gift and a tax deduction for the charitable portion of the gift
annuity. A gift annuity is a legal contract that is part gift and
part return of principal so some of the money returned every year
is tax-free. There is also the charitable deduction in the year the
gift is made or it may be spread over five years.
SENATOR THERRIAULT asked whether the programs could be set up to
benefit any group or cause.
MR. CALDER responded that charities have been offering gift
annuities for close to 90 years and typically a donor takes out a
gift annuity with a charity that they believe in or support.
SENATOR THERRIAULT asked if his definition of charity was
501(c)(3).
MR. CALDER said that was correct.
SENATOR THERRIAULT asked if it was only 501(c)(3) non-profits.
MR. CALDER said USC 170(c) is also listed in the bill under the
definition of charitable contribution but normally the bill is for
501 (c) that "we normally think of as a charitable organization."
SENATOR THERRIAULT said there are 501(c)(3)s that are not political
and 501(c)(4)s that are political.
MR. CALDER said that is correct and "the one this actually again
this applies to the 501(n-5) and then also 514(c) 5. So you have a
couple of them there."
SENATOR THERRIAULT responded, "I'm not sure if we're gathering up
money with governmental support and pouring it into politics."
MR. CALDER said the qualified charitable gift annuity means an
annuity as described in the code as a 501 (n-5) and a 514(c).
Normally a gift annuity is for a charitable organization and they
are normally 501 (c).
SENATOR THERRIAULT said, "(c) (3) or (c) (4)?"
MR. CALDER replied, "(c)(3)"
CHAIRMAN TAYLOR pointed out that 501 (c)(3) is provided on page 3,
at line 23 and 501(m)(5) is listed at line 25 and 514 (c)(5) is on
that same line and 170 (c) is on line 22. He shares Senator
Therriault's concern.
He noted that Mr. Shaftel's amendment was before them and he asked
whether Representative Murkowski had any objection.
MS ERICKSON stated she had no objection but her preference is the
model act.
CHAIRMAN TAYLOR moved the amendment as amendment 1 for the purpose
of discussion. On page 4, after "years." on line 1, remove the
period and add: "; or (C) a guarantee that the obligations of the
annuity contract will be met by a charitable organization that
meets the requirements of (A) and (B)."
Number 1323
SENATOR COWDERY expressed confusion about a charitable institution
sponsoring the required $300,000 in unrestricted funds. Could they
sponsor more than once with the same $300,000?
MR. SHAFTEL responded that a public charity would be very cautious
about providing this type of guarantee because they are
underwriting the annuity program. He agreed that using the
unrestricted $300,000 more that once was a concern and perhaps
there should be additional language to tighten the area.
Number 1480
SENATOR THERRIAULT referred to the definition of charitable
organization on page 3, line 20 and said "person" can be a living
breathing or a corporation. On line 22 he wondered whether "a
person" meant "a living breathing person who this gift was set up
to benefit?"
SENATOR TAYLOR responded that it did.
SENATOR THERRIAULT then referred to (b) and confirmed that the only
group that is allowed for the programs to be set up to benefit is
(c) (3)s.
CHAIRMAN TAYLOR responded affirmatively allaying the concerns
expressed by Senator Therriault.
SENATOR TAYLOR asked whether there was objection to amendment one
and there was none.
Amendment 1 passed with no objection.
SENATOR COWDERY moved SCS CSHB 121(JUD) from committee with
accompanying fiscal notes and individual recommendations.
There being no objection, the bill moved from committee.
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