Case Studies in Not-for-Profit Accounting and Auditing

Chapter 8 SPLIT-INTEREST AGREEMENTS

LEARNING OBJECTIVES

After completing this chapter, you should be able to do the following:

• Analyze the decisive characteristics of revocable and irrevocable split-interest agreements.
• Compare how different types of split-interest agreements are accounted for.
• Differentiate the five types of split-interest agreements.

TECHNICAL BACKGROUND INFORMATION

Not-for-profit entities sometimes enter into trust or other arrangements with donors where the not-for-profit entity will share the benefits of such trust or other arrangement with other beneficiaries. Such trust or other arrangements are referred to as split-interest agreements. As shown in the following illustration, there are five types of split-interest agreements commonly used by not-for-profit entities.

Under a split-interest agreement, a donor makes an initial gift to a trust, a fiscal agent, or directly to the not-for-profit, in which the not-for-profit has a beneficial interest but is not the sole beneficiary. The terms of some agreements do not allow donors to revoke their gifts; other agreements may be revocable by donors in certain situations. The time period covered by the agreement is expressed either as a specific number of years (or in perpetuity) or as the remaining life of an individual or individuals designated by the donor. The assets are invested and administered by ...