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Business and Policy Areas
Business and Policy Areas

GASB Issues Guidance on Split-Interest Gifts

April 4, 2016

On March 29 the Governmental Accounting Standards Board (GASB) issued Statement No. 81, "Irrevocable Split-Interest Agreements." Examples of irrevocable split-interest agreements include charitable lead trusts, charitable remainder trusts, and life-interests in real estate.

A typical irrevocable split-interest agreement has two components: a lead interest and a remainder interest. An irrevocable split-interest agreement terminates after a period-certain term (e.g.,  a specified number of years); a life-contingent term (upon the occurrence of a specified event, commonly the death of either the donor or the lead interest beneficiary); or a combination of both terms.

Public institutions with irrevocable split-interest agreements currently use GASB Statement No. 33, "Accounting and Financial Reporting for Non-exchange Transactions," because the irrevocable nature of split-interest gifts qualifies them as voluntary nonexchange transactions. As such, assets and related revenue have been recognized when eligibility requirements are met-and the time-related eligibility requirement has been deemed satisfied when the institution honors the donor's wishes and invests the asset until a specified future event. Consequently, public institutions have recognized an investment asset, a liability to the party with the "other" interest, and revenue for the remainder interest belonging to the institution.

Statement 81, however, requires that a deferred inflow of resources be recognized-rather than revenue-for the institution's beneficial (remainder) interest in an irrevocable split interest agreement. Further, subsequent fair value adjustments would adjust deferred inflows of resources in addition to asset and liability adjustments. At the termination of the irrevocable split-interest agreement, the amount reported as a deferred inflow of resources is recognized as revenue.

Statement 81 will also allow "funds held in trust by others" to be recognized as assets, which is not the case today. A public institution will recognize an asset and a deferred inflow of resources when it becomes aware of the agreement and has sufficient information to measure the beneficial interest. The beneficial interest asset initially should be measured at fair value and remeasured at fair value at each financial reporting date. Changes in the fair value of the beneficial interest asset also should be recognized as an increase or a decrease in the related deferred inflow of resources.

Statement 81 is effective for reporting periods beginning after December 15, 2016-FY18 for the vast majority of public colleges and universities-and retroactive application is required. Changes adopted to conform to the Statement's requirements should be applied by restating financial statements, if practicable, for all prior periods presented. If restatement for prior periods is not feasible, the cumulative effect, if any, should be reported as a restatement of beginning net position for the earliest period restated. In the first reporting period that the new guidance is applied, the notes to the financial statements should disclose the nature of the restatement and its effect. Also, the reason for not restating prior periods presented should be disclosed.


Sue Menditto
Director, Accounting Policy