This Section, which is an integral part of the requirements of this Subtopic, provides general guidance to be used in the recognition of
split-interest agreements, particularly those with embedded derivatives.
This Example illustrates the guidance in Sections
958-30-25 and
958-30-30 for initial recognition and measurement of a
charitable remainder annuity trust.
Shares of common stock are contributed to the control of an NFP which is required to pay the donor or the donor's beneficiary an annual fixed cash payment for 20 years, after which time the remaining shares revert to the NFP.
The debt host contract represents the liability for the series of 20 annual payments that would be required based on the assumption that the fair value of the common stock does not change over the 20-year period. The embedded equity-based derivative relates to the increase or decrease in each of the 20 annual payments due to changes in the fair value of the common stock.
Shares of common stock are contributed to the control of an NFP, which is required to make annual cash payments to the donor or the donor's beneficiary that are either a fixed dollar amount or a specified percentage of the fair value of the assets at the beginning of each annual period until the death of the donor or the donor's beneficiary, upon which time the remaining shares will revert to the NFP.
Shares of common stock are contributed to the control of an NFP, which is required to pay the donor or the donor's beneficiary an annual fixed cash payment for the longer of the beneficiary's remaining life or a specified period. The remaining shares then revert to the NFP.
Shares of common stock are contributed to the control of an NFP, which is required to pay the donor or the donor's beneficiary an annual cash payment equal to a specified percentage of the fair value of the assets at the beginning of each annual period for the greater of the beneficiary's remaining life or a specified period. The remaining assets revert to the NFP.
An NFP receives cash from a donor, which is invested by the NFP in common equity securities. The donor designates the NFP as lead beneficiary. The NFP receives an annual cash payment of either a fixed amount or a specified percentage of the fair value of the investment amount at the beginning of each annual period for a specified period of time. After that time, the remaining assets revert to the donor or the donor's beneficiary.
An NFP receives cash from a donor, which is invested by the NFP in common equity securities. The donor designates the NFP as lead beneficiary. The NFP receives an annual cash payment of either a fixed dollar amount or a specified percentage of the fair value of the investment amount at the beginning of each annual period until the death of the donor or the donor's beneficiary, at which time the remaining assets revert to the donor or the donor's beneficiary.
An NFP receives cash from a donor, which is invested by the NFP in common equity securities. The donor designates the NFP as lead beneficiary. The NFP receives an annual cash payment for either a specified percentage of the fair value of the assets at the beginning of each annual period or a fixed dollar amount. That cash payment is made for the greater of the beneficiary's (or the donor's) remaining life or a specified period. After that time, the remaining assets revert to the donor or the donor's beneficiary.
If during the terms of a greater-of-period-certain-or-life-contingent agreement, the beneficiary dies before the end of the period-certain terms in the agreement, that change in circumstance eliminates the life-contingent aspect of the contract. Thus, the agreement is now only a period-certain agreement and mirrors the agreement outlined in Case F requiring bifurcation of the embedded derivative.
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Creation of the Agreement Debit Credit Credit Assets Held by a Third Party Charitable lead trust Beneficial interest in lead trust Contribution revenue (a) Charitable remainder trust Beneficial interest in remainder trust Contribution revenue (a) Assets Held by the NFP Contribution revenue (a) Charitable lead trust Assets held in charitable lead trust Liability for amounts held for others Contribution revenue (a) Charitable remainder trust Assets held in charitable remainder trust Liability under trust agreement Contribution revenue (a) Charitable gift annuity Assets Annuity payment liability Contribution revenue (a) Pooled income fund Assets of pooled income fund Discount for future interest (Deferred revenue) Contribution revenue (a)![\"](\"/asc-img/GUID-FE701418-8CC7-4FAC-8553-FBE505B3498D-low.gif\")
Investment Income and Changes in the Fair Value of Assets Held Under the Agreement (b) Debit Credit Assets Held by a Third Party Charitable lead trust No entry No entry Charitable remainder trust No entry No entry Assets Held by the NFP Charitable lead trust Assets held in charitable lead trust Liability for amounts held for others Charitable remainder trust Assets held in charitable remainder trust Liability under trust agreement Charitable gift annuity Assets Investment return (c) Pooled income fund Assets of pooled income fund Liability to life beneficiary![\"](\"/asc-img/GUID-DD7A6FCD-7FC2-4BCD-885B-8A9397F03382-low.gif\")
Distribution to Holder of Lead Interest Debit Credit Assets Held by a Third Party Charitable lead trust Cash Beneficial interest in lead trust Charitable remainder trust No entry No entry Assets Held by the NFP Charitable lead trust Cash Assets held in charitable lead trust Charitable remainder trust Liability under trust agreement Assets held in charitable remainder trust Charitable gift annuity Annuity payment liability Cash Pooled income fund Liability to life beneficiary Assets of pooled income fund Reclassification of Amounts Distributed to Holder of Lead Interest When All Restrictions Are Met Debit Credit Assets Held by a Third Party Charitable lead trust Net assets with donor restrictions— Reclassifications out \"Net assets without donor restrictions— Reclassifications in\" Charitable remainder trust Not applicable Not applicable Assets Held by the NFP Charitable lead trust Net assets with donor restrictions— Reclassifications out \"Net assets without donor restrictions— Reclassifications in\" Charitable remainder trust Not applicable Not applicable Charitable gift annuity Not applicable Not applicable Pooled income fund Not applicable Not applicable![\"](\"/asc-img/GUID-F690A09D-9F73-4495-A19A-82344ED927EE-low.gif\")
Revaluation of Obligation to Other Beneficiaries Debit Credit Assets Held by a Third Party Charitable lead trust Not applicable Not applicable Charitable remainder trust Not applicable Not applicable Assets Held by the NFP Charitable lead trust Liability for amounts held for others (d) \"Change in value of split-interest agreements (a) (d)\" Charitable remainder trust Liability under trust agreement (d) \"Change in value of split-interest agreements (a) (d)\" Charitable gift annuity Annuity payment liability (d) \"Change in value of split-interest agreements (a) (d)\" Adjustment of Deferred Revenue—including Amortization of Discount and Changes in Life Expectancy Debit Credit Pooled income fund Discount for future interest (deferred revenue) Change in value of split-interest agreements Change in Fair Value of Beneficial Interest Debit Credit Assets Held by a Third Party Charitable lead trust Beneficial interest in lead trust \"Change in value of split-interest agreements (a) (d)\" Charitable remainder trust Beneficial interest in remainder trust \"Change in value of split-interest agreements (a) (d)\" Assets Held by the NFP Charitable lead trust Not applicable Not applicable Charitable remainder trust Not applicable Not applicable Charitable gift annuity Not applicable Not applicable Pooled income fund Not applicable Not applicable![\"](\"/asc-img/GUID-9B3DBAAB-25AA-4B0A-8D7F-D1224894007C-low.gif\")
Termination of the Trust Debit Credit Credit Assets Held by a Third Party Charitable lead trust Change in value of split-interest agreements (a) Beneficial interest in lead trust Charitable remainder trust \"Assets (for example, endowment or other investments)\" Beneficial interest in remainder trust Change in value of split-interest agreements (a) (d) Assets Held by the NFP Change in value of split-interest agreements (a) (d) Charitable lead trust Liability for amounts held for others Assets held in charitable lead trust Change in value of split-interest agreements (a) (d) Charitable remainder trust Liability under trust agreement Change in value of split-interest agreements (a) Charitable remainder trust \"Assets (for example, endowment or other investments)\" Assets held in charitable remainder trust Charitable gift annuity Annuity payment liability Change in value of split-interest agreements (a) Pooled income fund Discount for future interest (deferred revenue) Change in value of split-interest agreements (a) Pooled income fund \"Assets (for example, endowment or other investments)\" Assets of pooled income fund All Agreements \"Additionally, a reclassification may be necessary if net assets are no longer subject to time or purpose restrictions.\" (a)\tSee Section 958-30-45 for classification of contribution revenue and change in the value of split-interest agreements. (b)\tDebit and credit could be reversed depending on whether the change in fair value of the assets held under the agreement is a gain or a loss. (c)\t\"Alternatively, the annuity payment liability could be credited, resulting in the netting of investment return with other changes in the value of split-interest agreements.\" (d)\tDebit or credit could be reversed depending upon the whether the adjustment increases or decreases the liability.