Question

I noticed that the American Heart Association reports split-interest agreements. What are they and how do they relate to the non-profit organization's mission? Explain.

Answer 1

When any contribution is entered into by any person with any Not-For-Profit organization (NFP), wherein the person makes contribution on a condition that the NFP pays a certain sum for using that contribution (termed as Asset) and deriving the benefits every year generated by it.

For example, Mr X contributes $ 1 million to a NFP under a split interest agreement wherein every year the NFP will pay 10% of the asset to him. Here, the NFP can completely utilise the full contribution received from Mr X provided it pays him as sum of $ 0.1 Million (ie 10% of $ 1 Million) every year. Thus this agreement clearly splits the benefits and interests between the beneficiary and the NFP. Hence, its termed as Split-interest agreements. The agreement automatically concludes on event of death of the beneficiary.