We frequently hear about so-called “underwater gift annuities” from our clients. We’re talking about those charitable gift annuities (CGAs) that were established many years ago – by donors with the best of intentions – but for which, over the years, the annuity payments have used up all the gift principal. The annuitant (who is frequently the donor) has probably lived well past his or her original life expectancy, but the sponsoring charity is still obligated to continue making annuity payments for as long as the annuitant is still alive. In case there is any question, there is absolutely zero chance of the charity ever receiving any residuum from that gift. And rest assured, this is not an unusual occurrence. We hear this same sad story again and again.

How did this happen? How did we end up in these unpleasant circumstances? And more specifically, what is to be done now? How does the sponsoring charity manage the situation going forward? And does the charity have any options at this point?