The Office of General Counsel issued the following informal opinion on June 6, 2005, representing the position of the New York State Insurance Department.
Re: Charitable Annuities
May a not-for-profit organization that has existed for over ten years establish a charitable gift annuity with a remainder that is assigned to a third party?
No. Pursuant to N.Y. Ins. Law § 1110(a) (McKinneys Supp. 2005), the remainder must be returned to the not-for-profit organization to which the permit to establish the annuity contract was issued.
The inquirer inquired about a charitable organization that wants to obtain a permit pursuant to N.Y. Ins. Law § 1110(a) (McKinneys Supp. 2005) to sell a charitable annuity to a donor. The charitable organization has existed for 70 years, and it has an affiliate that has existed for only three years, to which it would like to leave the remainder of the annuity for which it would like a permit.
N.Y. Ins. Law § 1110(a) (McKinney's Supp. 2005) states:
The superintendent may, in his discretion, issue a permit to make annuity agreements with donors to any duly organized domestic or foreign non-stock corporation or association conducted without profit and engaged in active operation for at least ten years prior thereto solely in bona fide charitable, religious, missionary, educational or philanthropic activities. The permit shall authorize such corporation or association to receive gifts of cash and other property conditioned upon, or in return for, its agreement to pay an annuity to the donor, or his nominee, and to make and carry out such annuity agreement. Every such corporation or association shall, before making such agreement, file with the superintendent copies of its forms of agreements with annuitants and a schedule of its maximum annuity rates, which shall be computed on the basis of the annuity standard adopted by it for calculating its reserves so as to return to it upon the annuitant's death a residue at least equal to one-half the original gift or other consideration for such annuity.
N.Y. Ins. Law § 1110(b) (McKinney's Supp. 2005) states in pertinent part:
Every such domestic corporation or association shall maintain admitted assets . . . The required admitted assets shall be invested in accordance with the prudent investor standard as defined in section 11-2.3 of the estates, powers and trusts law and shall not be subject to the investment limitations set forth in this chapter. Such assets shall be segregated as separate and distinct funds, independent of all other funds of such corporation or association, and shall not be applied to pay its debts and obligations or for any purpose except the aforesaid annuity benefits.
N.Y. Ins. Law § 1110(d) (McKinney's Supp. 2005) states in pertinent part that "[n]o such corporation or association shall make or issue in this state any annuity contract before obtaining a permit . . . . " N.Y. Ins. Law § 1110 (McKinneys Supp. 2005) allows charitable organizations that have the required permit issued by the Superintendent to provide annuity payments in exchange for receipt of a gift; however, nothing in N.Y. Ins. Law § 1110 (McKinneys Supp. 2005) states that when the annuitant dies, the remainder of such gift may be given to a party or organization other than the charity that holds the annuity permit. Therefore, pursuant to N.Y. Ins. Law § 1110 (McKinneys Supp. 2005), upon the death of the annuitant, the annuity remainder must stay with the charity to which the permit to establish the annuity contract was issued.
In conclusion, a charitable organization may not specify in an annuity agreement with a donor that any other charitable organization may receive the annuity remainder upon the death of the annuitant, no matter how many years the other charitable organization has been in existence. However, once the annuitant has died, and the remainder annuity becomes the property of the charity that issued the annuity, the Insurance Law does not restrict how the charitable organization may use the money. Assuming conformity with any and all other laws that control such organizations, the charity would be free to spend the gift as it wanted.
For further information one may contact Senior Attorney Susan Dess at the New York City Office.