Buying a Charitable Annuity Requires Care
By: Source: AARP Bulletin Today Date Posted: 2006-07-03 11:08:30.017264-04:00
Magdalena Scheller of Phoenix bought a charitable gift annuity because it promised her a predictable stream of income for life and a way to honor the memory of her late husband, an engineer.
It didn't work out that way. Today, the $480,000 Scheller invested in the annuity is gone, and neither she nor the university engineering department that was supposed to benefit from her generosity will ever see any of the money.
In recent years charitable gift annuities, which feature attractive rates of return and certain tax benefits, have been exploding in popularity. (In exchange for their gifts of cash, stock or other property, donors get a lifetime of fixed payments.) Thousands of legitimate charitable, educational and religious organizations offer such annuities to interested donors.
Unfortunately, they've also attracted the interest of con artists and other crooks—so much so that the North American Securities Administrators Association recently added charitable gift annuities to its list of "Top 10" investment scams.
Marc Beauchamp, the association's executive director, says that gift annuities are subject to virtually no federal regulation. "This is a heads-up to investors that they need to be cautious about charitable gift annuities," he told the AARP Bulletin. "People really need to be extra careful."
Scheller wishes that she had been. She was one of 430 investors who bought charitable gift annuities issued by the now-defunct Mid-America Foundation Inc. in Scottsdale, Ariz. Federal and state authorities say that Robert R. Dillie, the organization's founder, ran what amounted to a $54 million Ponzi scheme through a network of unwitting independent insurance agents, financial planners and accountants. They allege that Dillie used investors' funds to buy three homes in Las Vegas and a ranch in South Dakota and to support his gambling in Las Vegas casinos.
"I didn't invest in a charity to be a charity for one person," Scheller, 68, says.
The 1995 Philanthropy Protection Act requires all charities that issue gift annuities to give prospective donors a detailed disclosure statement.
"These can be a way to do good and do well financially," Beauchamp says, "[but] investors need to do their homework."
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