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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