Projected Remainder Amounts calculations explained
Projected Remainder Amounts produces a report that predicts how much each gift will distribute to charity and in what year. The report also provides present values of each projected distribution based on two different present value rates. Information in the report is grouped first by year of distribution and then by designated purpose within each year, providing a powerful tool for analyzing how income from planned gifts will be distributed throughout an organization.
Calculating the projected amount
To calculate the projected distribution for a gift, GiftWrap first predicts how long the gift will last. This prediction depends on the Valuation Date for the projection and how the gift term is determined. Most planned gifts make payments for the lifetime of one or more beneficiaries and then terminate. A few make payments for a fixed term of years or for a combination of lives and a fixed term. In every case, GiftWrap determines the predicted remaining duration of a gift the same way it computes this figure for the Gift Expectancies/Term End report.
A gift with an Account Closed Date prior to the Valuation Date will not be included in the projection. Likewise, only beneficiaries alive on the Valuation Date are used to compute the projected year of termination. A gift whose beneficiaries have all died prior to the Valuation Date will not be included in the projection.
The second step in projecting the distribution amount is to compound the current Market Value of the gift by the Total Annual Return or Total Annual Growth percentage entered by you for the relevant gift type. The relevant Total Annual Return percentage should be net of all fees and administrative costs. For each year that the gift is predicted to last, the giftvalue is increased by this Total Annual Return percentage, then reduced by the amount of the payments the gift is predicted to make that year. These yearly payments are adjusted for the payment frequency and timing using the same adjustment factors employed to compute charitable deductions (these factors are found in Table F in IRS Publication 1458 and Table K in IRS Publication 1457). The value in the year the gift is predicted to terminate is reported as the Projected Value.
The calculation method for each type of gift is as follows:
Gift Type Projected Value Calculation Method
CGA - each year, increase value by Total Annual Return %, then subtract annuity amount adjusted for payment frequency; see example below
CRAT - same as gift annuity
CRU - each year, increase value by Total Annual Return %, then subtract product of payout rate adjusted for payment frequency multiplied by yearstarting value
PIF - each year, increase value by Total Annual Growth %
RLE - each year, increase value by Total Annual Return %
BEQ - no adjustments made to market value
For example, a gift annuity has a current market value of $10,000, pays $200 at the end of each quarter, and is predicted to last 3 years. You enter a Total Annual Return for CGAs of 10%. The Projected Value will be $10,591.56, calculated as follows:
| Year 1 |
|
| Market Value |
10,000.00 |
| Increase @ 10% |
+ 1,000.00 |
|
|
|
| Payments |
800.00 |
| Freq. adjustment @ 10% |
x 1.0266 |
| Adjusted payments |
- 821.28 |
|
New Market Value |
10,178.72 |
|
|
|
| Year 2 |
|
| Market Value |
10,178.72 |
| Increase @ 10% |
+ 1,017.87 |
| Adjusted payments |
- 821.28 |
| New Market Value |
10,375.31 |
|
|
|
| Year 3 |
|
| Market Value |
10,375.31 |
| Increase @ 10% |
+ 1,037.53 |
| Adjusted payment |
s - 821.28 |
| New Market Value |
10,591.56 |
Computing present values
The Cash Flow Projection routine computes the present value of each projected distribution amount using two different present value rates entered by you. Displaying two present values emphasizes that the distribution amounts are only projections whose values depend greatly on your assumptions.
For each present value rate, the projected distribution amount is discounted by the rate for each year from the year of the Valuation Date you enter to the projected year of distribution. The higher the interest rate, the greater the discounting and the lower the present value. In the example above, for instance, the present value of the $10,662 projected distribution in 3 years is $8,952.02, assuming a 6% interest rate. The present value is calculated as follows:
$10,662 x (1/1.06)^3 = $8,952.02
Grouping of report information
Information in the Projected Remainder Amounts eport is grouped first by projected year of distribution, then by gift designation within each year. Within each designation, projected distributions are broken down by gift type. Gift designations are defined by the user under Setup/Designation and specified in the Purpose tab of each giftGift Information screen. Grouping information in this way makes it easy for you to review the projected amount that will be distributed to each designated purpose within an organization each year.
The projected value of each designated portion of a gift is listed separately for gifts that are assigned more than one designation. For example, a gift annuity with a total projected value of $100,000 in 2010 that is designated 40% for scholarships and 60% for capital projects will be split appropriately in the report under distributions in 2010: $40,000 of projected value will be included in the CGA distribution under scholarships and $60,000 of projected value will be included in the CGA distribution under capital projects. If a gift has no assigned designation, its entire projected distribution is listed under No Designation Assigned.