Project Pages

Irrevocable Charitable Trusts

Project Description: The objective of this project is determine what accounting and financial reporting guidance, if any, should be established for irrevocable charitable trusts held for the benefit of governmental entities.

Status:
Currently being deliberated
Added to Research Agenda: December 2013
Added to Current Agenda: May 2014

IRREVOCABLE CHARITABLE TRUSTS—PROJECT PLAN


Background
: Questions about the appropriate reporting in irrevocable trust situations occasionally come to the GASB. Discussions with practitioners and auditors suggest that practice varies. Some constituents believe that the recognition criteria in Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, are not met and recognition is not appropriate. Paragraph 22 from Statement 33 states:

In some kinds of government-mandated and voluntary nonexchange transactions, a provider transmits cash or other assets with the stipulation (time requirement) that the resources cannot be sold, disbursed, or consumed until after a specified number of years have passed or a specific event has occurred, if ever. In the interim, the provider requires or permits the recipient to benefit from the resources—for example, by investing or exhibiting them. Examples of these transactions include permanently nonexpendable additions to endowments and other trusts; term endowments; and contributions of works of art, historical treasures, and similar assets to capitalized collections. For these kinds of transactions, the recipient should recognize revenues when the resources are received, provided that all eligibility requirements have been met. Resulting net assets (or equity or fund balance, as appropriate) should be reported as restricted for as long as the provider's purpose restrictions or time requirements remain in effect.

Other constituents do not see a substantive difference between permanent endowments received by an institution (and subsequently transferred to independent investment managers) and resources deposited directly into an irrevocable trust.
Private institutions, under the guidance of Financial Accounting Standards Board Statement No. 136, Transfers of Assets to a Not-for Profit Organization or Charitable Trust That Raises or Holds Contributions for Others, recognize the resources held in an irrevocable trust as assets and the contributions into the trust as revenues. Paragraph 15 of Statement 136 states:

A specified beneficiary shall recognize its rights to the assets (financial or nonfinancial) held by a recipient organization as an asset unless the recipient organization is explicitly granted variance power. Those rights are either an interest in the net assets of the recipient organization, a beneficial interest, or a receivable. … If the beneficiary has an unconditional right to receive all or a portion of the specified cash flows from a charitable trust or other identifiable pool of assets, the beneficiary shall recognize that beneficial interest, measuring and subsequently remeasuring it at fair value. In all other cases, a beneficiary shall recognize its rights to the assets held by a recipient organization as a receivable and contribution revenue in accordance with the provisions of Statement 116 for unconditional promises to give.

Accounting and Financial Reporting Issues: The project will consider the following issues:

The following issues will be considered during the pre-agenda research stage:
  1. What are the types of irrevocable charitable trusts encountered in the government environment?
  2. What information regarding irrevocable charitable trusts held by the government and by third parties do governments currently have available?
  3. What specific information regarding irrevocable charitable trusts for benefit of the government is necessary for users to make decisions and assess accountability?
  4. Do irrevocable charitable trusts meet the definition of an asset?
  5. What are the measurement and recognition issues associated with irrevocable charitable trusts?
History: The topic was added to the potential projects list in January 2006. During their February 2013 meeting, the Governmental Accounting Standards Advisory Council (GASAC) members ranked the priority of this topic in the bottom half of all research activities and potential projects. The Board added this topic to its pre-agenda research activities in December 2013.

Board Meetings Research Activities

July 2014:

Review of relevant literature and the definition of an irrevocable charitable trust.

August 2014:

Assessment of whether irrevocable charitable trusts meet the definition of an asset in Concepts Statement 4.

September 2014:

Recognition and measurement of beneficial interests in irrevocable charitable trusts.

November 2014:

Recognition and measurement of beneficial interests of others in irrevocable charitable trusts by the entity holding the assets.

December 2014:

Intra-entity beneficial interests in irrevocable charitable trusts.

January 2015:

Disclosures about beneficial interests in irrevocable charitable trusts and the beneficial interests of others in irrevocable charitable trusts that the entity is holding.

March 2015:

Review of draft standards section of an Exposure Draft.

March 2015 (T/C):

Review the preballot draft of an Exposure Draft.

May 2015 (T/C):

Review the ballot draft of an Exposure Draft; issue document.

June-August 2015:

Comment period.

September 2015 (T/C–December 2015 (T/C):

Redeliberations.

January 2016:

Review the preballot draft of the final Statement.

January 2016 (T/C):

Review the ballot draft of the final Statement.