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Accounting For Split Interest Agreements

General structure of a lead trust for an NFP organization: assets such as cash or shares are brought by the donor to control of the NFP organization (either by the role of the NFP organization as a trustee of a trust holding the assets, or directly by the organization NFP, which holds the assets as the general heritage of its organization). The NFP organization receives periodic cash payments (Lead interest) which are either a fixed dollar amount or a certain percentage of the fair value of assets at the beginning of each period. (Note: some of the assets can be liquidated to make the necessary payments.) If the contract is terminated, the remaining assets are reset to the donor`s donor or beneficiary (the rest of the interest). For the duration of the agreement, the NFP organization is responsible for the remaining interests. The responsibility of the NFP organization for its obligation to the donor`s donor or beneficiary is based in part on the fair value of the assets. Paragraph 6 of Statement 133 defines the characteristics that a contract must be considered a derivative instrument as a whole. Paragraph 12 concerns contracts that do not fully meet the definition of a derivative instrument in paragraph 6, but may contain provisions that constitute an integratedrivative instrument that could justify separate accounting. (Note that Statement 155 was issued in February 2006 and allows for fair value choice for hybrid instruments that would otherwise require a fork. However, Statement 155 does not apply to hybrid financial instruments covered in paragraph 8 of FASB Statement 107, information relating to the fair value of financial instruments, including insurance contracts, as presented in FASB 60 extracts, insurance company accounts and reports and No. 97, the accounting and reporting of insurance companies for certain long-term contracts and profits made and losses resulting from the sale of stakes, are described. , by means other than financial guarantees and investment contracts.

Hybrid instruments intended to be fully accounted for at fair value cannot be used as hedging instruments in a hedging relationship.) Paragraph 12 states in part that an incorporatedrivative instrument must be separated from the reception contract and counted as a derivative instrument, if and only if all the following criteria are met: Example 1: Remainder Trust (period-certain, fixed payments) [aka Charitable Remainder Annuity Trust] Common shares are assisted by the control of the NFP organization, which is required to pay the donor or the donor beneficiary a fixed annual cash payment for 20 years , the remaining shares will then be returned to the NFP organization.