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Focus on Public Sector: GASB Releases Exposure Draft on Accounting For Irrevocable Split-Interest Agreements

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On June 2 the GASB issued an exposure draft that provides guidance for irrevocable split-interest agreements.  Split-interest agreements are a specific type of giving arrangement used by donors to provide resources to two or more beneficiaries, including governments. Split-interest agreements can be created through trusts or equivalent arrangements under which a donor transfers resources to an intermediary to hold and administer for the benefit of the government and at least one other beneficiary.
July 21, 2015

On June 2 the GASB issued an exposure draft that provides guidance for irrevocable split-interest agreements.  Split-interest agreements are a specific type of giving arrangement used by donors to provide resources to two or more beneficiaries, including governments. Split-interest agreements can be created through trusts or equivalent arrangements under which a donor transfers resources to an intermediary to hold and administer for the benefit of the government and at least one other beneficiary. Common examples of split-interest agreements include charitable lead trusts, charitable remainder trusts, charitable annuity gifts, and life-interests in real estate.

In cases where the government is the intermediary for the split-interest agreement (meaning the government holds the trust assets, makes payments to third party beneficiaries, and retains its share of the trust), the accounting for the agreement is as follows:

  • The government records an asset for the fair value of trust assets, a liability representing the amount due to third parties over the course of the agreement, and a deferred inflow for the portion of the trust that will benefit the government.
  • The liability and deferred inflow are to be remeasured each year, with necessary adjustments recognized as an increase or reduction of revenue, as appropriate.
  • Upon the termination of the trust, or as assets are distributed to the government for its use pursuant to the terms of the agreement, the deferred inflow is recognized as revenue.

In cases where a third party is the intermediary for the split-interest agreement, and the government is merely a beneficiary, the accounting for the agreement is as follows:

  • The government records an asset representing the fair value of future distributions to be received from the trust, and a corresponding deferred inflow.
  • The asset and deferred inflow are to be remeasured each year, with necessary adjustments recognized as an increase or reduction of revenue, as appropriate.
  • Upon the termination of the trust, or as assets are distributed to the government for its use pursuant to the terms of the agreement, the deferred inflow is recognized as revenue.

This Statement will largely effect governments that receive private contributions, such as public colleges and universities, public hospitals, and other public healthcare providers.  The requirements of this proposed Statement would be effective for financial statements for periods beginning after December 15, 2016, and would be applied retrospectively.

Comments on this exposure draft are due September 18, 2015.  The full text of the Exposure Draft can be found here.

 

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

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