STATE OF NEW YORK
25 BEAVER STREET
NEW YORK, NEW YORK 10004
|George E. Pataki
Gregory V. Serio
The Office of General Counsel issued the following opinion on February 13, 2004, representing the position of the New York State Insurance Department.
RE: Charitable Gift Annuities, Acceptable Consideration
May a charity incorporated and operating in a state other than New York that holds, in accordance with New York Insurance Law § 1110 (McKinney 2000 and 2003 Supplement), a permit to issue charitable gift annuities, through the medium of a separate fund, receive outside of New York a contribution of real estate in exchange for issuance of a charitable gift annuity to a resident of a jurisdiction where real estate is an acceptable consideration for such an annuity?
No, such a transaction would be contrary to New York Insurance Law § 1110.
The inquirer represents a charity incorporated outside of New York that holds a permit from the Department in accordance with New York Insurance Law § 1110. The inquirers client has asked whether it may accept, from a resident of its state of domicile or of any state where real estate is an acceptable consideration for such annuity, a gift of real estate in consideration of a charitable gift annuity. It is the inquirers understanding that the answer is no. If the inquirers understanding is correct, the inquirer seeks both the basis for the Departments position and an indication of whether the problem could be resolved through annuities on New York residents being reserved in a separate fund.
New York Insurance Law § 1110 provides:
(a) The superintendent may, in his discretion, issue a special 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 money 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.
(b) 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.
(c) No such corporation or association organized under the laws of another state shall be permitted to make such annuity agreements in this state unless it complies with all requirements of this section imposed upon like domestic corporations or associations. (emphasis added)
(d) No such corporation or association shall make or issue in this state any annuity contract before obtaining a permit issued in accordance with the provisions of this section except that if its requisite reserve on its outstanding annuity agreements computed in accordance with section four thousand two hundred seventeen of this chapter does not exceed the amount of five hundred thousand dollars, it may make gift annuity agreements in this state and shall be exempted from securing a permit provided it maintains the reserve required by section four thousand two hundred seventeen of this chapter and a surplus of at least twenty-five per centum of such reserve.
. . .
For purposes of construing New York Insurance Law § 1110(a), the current meaning of "money" must control. New York Uniform Commercial Code §1-201(24) (McKinney 1993 and 2002 Supplement) defines money as "a medium of exchange authorized or adopted by a domestic or foreign government as part of its currency." Readily marketable securities are capable of disposal on the date of transfer at a readily determinable price and thus are the functional equivalent of money as the term is used in New York Insurance Law § 1110(a).
Therefore, the Department has interpreted New York Insurance Law § 1110(a) as permitting such securities to serve as consideration for a charitable annuity. The Departments view is that real property does not have such sufficient objective indicia of ready marketability to serve as consideration for a charitable gift annuity. This position would not preclude a donor from selling real property and immediately transferring the sales proceeds to a qualified organization in exchange for a charitable gift annuity.
In order to protect the interests of New York annuitants, pursuant to New York Insurance Law § 1110(c), the law provides that foreign charities desiring to issue charitable gift annuities to New York residents must, in all respects, comply with New York law as interpreted by the Department. It has been the longstanding position of the Department that New York Insurance Law § 1110(c) means that a permit may not be issued to a foreign charity, nor may the foreign charity issue annuities without a permit in accordance with New York Insurance Law § 1110(d), unless there is compliance with all requirements imposed on domestic charities, including consideration for the annuity. Further, every foreign charity seeking a permit in New York agrees, as a condition to issuance of the permit, that it will not accept real estate as consideration for the annuity.
The use of an accounting mechanism, such as a separate fund for New York annuitants, as the inquirer suggested in our January 15, 2004 conversation, is not the type of segregation contemplated by New York Insurance Law § 1110(b). Since the charity in question is a unitary corporation or association, and the New York Insurance Law, unlike California Insurance Law § 11521.1(a) (West 2000), does not authorize a segregated account for domiciled annuitants, such an accounting mechanism is not permissible.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.