Project Pages

Irrevocable Charitable Trusts

Research Description: The initial objectives of this pre-agenda research are (1) to identify the types of irrevocable charitable trusts encountered in the government environment and (2) to consider whether resources held for the exclusive benefit of governments in these irrevocable trusts meet the definition of an asset of the beneficiary governments. The research should provide the Board with the information necessary to consider whether additional guidance is needed and, if so, support deliberations over developing specific accounting and financial reporting standards.

Status: Added to Research Agenda: December 2013


:Questions about the appropriate reporting in irrevocable trust situations occasionally come to the GASB. Discussions with practitioners and auditors suggest that practice varies. Some constituents believe that the recognition criteria in Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, are not met and recognition is not appropriate. Paragraph 22 from Statement 33 states:

In some kinds of government-mandated and voluntary nonexchange transactions, a provider transmits cash or other assets with the stipulation (time requirement) that the resources cannot be sold, disbursed, or consumed until after a specified number of years have passed or a specific event has occurred, if ever. In the interim, the provider requires or permits the recipient to benefit from the resources—for example, by investing or exhibiting them. Examples of these transactions include permanently nonexpendable additions to endowments and other trusts; term endowments; and contributions of works of art, historical treasures, and similar assets to capitalized collections. For these kinds of transactions, the recipient should recognize revenues when the resources are received, provided that all eligibility requirements have been met. Resulting net assets (or equity or fund balance, as appropriate) should be reported as restricted for as long as the provider's purpose restrictions or time requirements remain in effect.

Other constituents do not see a substantive difference between permanent endowments received by an institution (and subsequently transferred to independent investment managers) and resources deposited directly into an irrevocable trust.
Private institutions, under the guidance of Financial Accounting Standards Board Statement No. 136, Transfers of Assets to a Not-for Profit Organization or Charitable Trust That Raises or Holds Contributions for Others, recognize the resources held in an irrevocable trust as assets and the contributions into the trust as revenues. Paragraph 15 of Statement 136 states:

A specified beneficiary shall recognize its rights to the assets (financial or nonfinancial) held by a recipient organization as an asset unless the recipient organization is explicitly granted variance power. Those rights are either an interest in the net assets of the recipient organization, a beneficial interest, or a receivable. … If the beneficiary has an unconditional right to receive all or a portion of the specified cash flows from a charitable trust or other identifiable pool of assets, the beneficiary shall recognize that beneficial interest, measuring and subsequently remeasuring it at fair value. In all other cases, a beneficiary shall recognize its rights to the assets held by a recipient organization as a receivable and contribution revenue in accordance with the provisions of Statement 116 for unconditional promises to give.

Major Research Issues: An irrevocable trust is an arrangement in which contributions of resources, once made by a contributor, can no longer be accessed by that contributor. Further, the trust cannot be altered or terminated without the acquiescence of the beneficiaries of the trust.

The following issues will be considered during the pre-agenda research stage:
  1. What types of trust arrangements are in used in practice?
  2. Does the substance of trust arrangements currently used in practice define the resources held and govern their access and use in ways that could meet the definition of an asset and the criteria for revenue recognition?
  3. If the trust arrangements do not meet the definition of an asset, should the resources be disclosed in the notes to the financial statements?
History: The topic was added to the potential projects list in January 2006. During their February 2013 meeting, the Governmental Accounting Standards Advisory Council (GASAC) members ranked the priority of this topic in the bottom half of all research activities and potential projects.

Research Work Plan: The research will consist principally of a literature review and archival research. The literature review will likely be brief, as the standards are already well understood. The staff will speak with staff of the FASB to explore what issues, if any, have arisen in practice regarding the application of FASB Statement No. 136, Transfers of Assets to a Not-for Profit Organization or Charitable Trust That Raises or Holds Contributions for Others (ASC Topic 958). The archival research will examine the financial reports of governments that have irrevocable trusts.

The research might also include a brief set of interviews with preparers of financial statements for governments with irrevocable charitable trusts and auditors of such governments, as well as with users of those governments’ financial reports. The purpose of these interviews will be to further explore what issues, if any, governments and auditors have had in accounting for irrevocable charitable trusts. Interviews with users will be intended to determine how important information about irrevocable charitable trusts is to them and what information, if any, they require for making decisions or assessing accountability.

Board Meetings Research Activities

January–February 2014:

Archival research; review relevant literature and guidance of other standards setters.

February–March 2014: Conduct interviews, if necessary, and draft research memorandum.
April 2014: Review results of research with the Board and consider addition of project to the current agenda.