Handbook of Business Procedures
Date published: March 10, 2010
Last revised: March 10, 2010
Issued by: Financial Accounting and Reporting
2.2.12. ANNUITY AND LIFE INCOME FUNDS—58-ACCOUNTS
Annuity and Life Income Fund accounts are used to record gifts and subsequent transactions in which the donor has reserved income for oneself or others. The University of Texas Investment Management Company (UTIMCO) manages and invests Annuity and Life Income Funds, and The University of Texas System performs accounting and administrative functions for them.
Annuity Funds and Life Income Funds are received by the University of Texas at Austin under deferred giving agreements. There are four types of deferred giving agreements that qualify the donor for federal income tax benefits: charitable gift annuity contracts, pooled life income funds, charitable remainder unitrusts, and charitable remainder annuity trusts.
Annuity Funds return a portion of the principal to the beneficiary, and payments remain fixed over the life of the contract. Life Income Funds only return the income earned on the fund to the beneficiary, so the payments may vary depending on market conditions.
Annuity Funds and Life Income Funds provide payments to beneficiaries during their lifetimes or for a specific term. The university may use the remaining principal for other purposes, as defined by the donor, upon the death of the beneficiaries. Ultimately, these funds could either be expendable or used as an endowment for restricted or unrestricted purposes.
1. Pooled Income Funds
Pooled income funds are trusts wherein the funds are commingled with other assets, and the beneficiary receives a pro rata share of the pooled funds’ earnings for their lifetime. Upon the donor’s death, the donor’s share of the fund is severed from the pooled fund and used for charitable purposes.
2. Charitable Remainder Annuity Trusts
For charitable remainder annuity trusts, the donor irrevocably transfers assets to the trust, and in return, the donor or other beneficiary receives a fixed annuity for life or for a term of years. Upon termination, remaining trust assets are transferred to charity in accordance with the donor’s intent.
3. Charitable Remainder Unitrust
For charitable remainder unitrusts, the donor irrevocably transfers assets to the trust, and in return the donor or other beneficiary receives a variable annuity for life or for a term of years. The trust payout each year is determined by multiplying the market value of the assets by the percentage specified in the trust agreement. Upon termination, remaining trust assets are transferred to charity in accordance with the donor’s intent.
4. Inexhaustible Assets
Inexhaustible assets do not depreciate. These include land and land improvements, as well as collections or items whose economic benefit or service potential is used up so slowly that the estimated useful lives are extraordinarily long. Because of their cultural, aesthetic, or historical value, holders protect and preserve these assets more than similar assets without such value.
UT System and UTIMCO perform all accounting functions for 58-accounts.
Expenses cannot be paid from 58-accounts.
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