Ron Brown at Gift Planning History.org

In settings very different from their many countries of origin, donors in the thirteen British-run colonies in America found innovative ways to make gifts using financial contracts, real estate, crops, livestock, books, artworks, and other tangible property.

Samuel Fuller, 39 years old upon landing in Plymouth, a signer of the Mayflower Compact, and a self-taught surgeon who served as the only physician for the colony, made his will on July 30, 1633 and died a month or so later. Fuller bequeathed a future interest in livestock: “the first Cow calfe that my Browne Cow shall have to the Church of God at Plymouth.”

In 1650, Boston merchant John Newgate gave Harvard a permanent annuity of five pounds a year through a complicated financial contract. The annuity was payable by Newgate during his life, and by a farm lease after his passing. In 1670, London merchant William Pennoyer left a much larger gift through his will: annuity payments of 34 pounds from a farm lease.

Payments to the college began after the death of Pennoyer’s wife in 1678. Harvard capitalized the annuities given by Newgate, Pennoyer, Robert Keayne, and another donor, and recorded their income streams as an investment asset on its balance sheet in 1672.

People give what they own. With help from charitable gift planners, today’s donors give publicly-traded and closely-held stocks, bonds, LLCs and other corporate interests, retirement accounts, and cryptocurrencies. Making gifts of complex noncash assets is part of a long tradition that can be facilitated in recent years through national donor-advised funds, community foundations, and specialized firms.  For example, in 2018, 47% of contributions through the donor-advised fund called Fidelity Charitable were made in the form of publicly traded securities (stocks, bonds and mutual funds), and 16% ($1.3 billion) were non-publicly traded assets (private stock, restricted stock, limited partnership interests and cryptocurrency).

Introduction: History Matters

Soon after winning independence and ratifying a new U.S. Constitution, many states banned the use of charitable trusts. What was going on?

The answer is an important chapter in the thousand-year history of charitable trusts.

Eager to set aside ancient English precedents in favor of modern laws applicable to the American people,¹ newly-empowered legislators revoked many laws, including the Statute of Charitable Uses, enacted two centuries earlier by Parliament. (In modern law, what was called a “use” we now call a trust.)

Why was the statute unacceptable? One reason is that the statute specifically authorized the Church of England to act on behalf of the kingdom by supervising and regulating charitable trustees.² The statute could not be amended by simply substituting an American equivalent for England’s official state church. Freedom of religion, including freedom from regulation by any particular church, was enshrined in the first amendment to the Constitution: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.”

Policymakers assumed the 1601 statute provided the sole legal authority to create charitable trusts, so they believed that revoking the statute meant charitable trusts were no longer valid under the laws of their states. That position was upheld by the U.S. Supreme Court in 1819 in a decision written by Chief Justice John Marshall.³

Legal support for charitable trusts in the United States was at a crossroads.  A better understanding of history changed the course of state and federal policies.

In 1818, British legal historians began to uncover overwhelming evidence that charitable trusts predated the Statute of Charitable Uses by hundreds of years. The statute was not the original authority for people creating charitable trusts.

Pointing to historical evidence first published in the U.S. in 1827,⁴ a U.S. circuit court of appeals decision in Magill v. Brown (1833)⁵ found that charitable trusts preceded the 1601 statute.  In 1844 the U.S. Supreme Court agreed in Vidal v. Girard’s Executors that the American law of charitable trusts was grounded in the long experience of trust donors and the precedents of common law. The court ruled that charitable trusts were valid even in states that had revoked the English statute, although New York imposed other restrictions.⁶ 

History may not always repeat itself, but sometimes it rhymes. In this 50^th anniversary year of the Tax Reform Act of 1969, a few people have asserted that charitable gift planning began with the 1969 legislation, which “created charitable remainder trusts.” American policymakers must not act on a false assumption that can be corrected easily by historical information. Like the Statute of Charitable Uses, the 1969 Act was intended to prevent well-known abuses of trust arrangements. [See my article on The 50^th Anniversary of the Tax Reform Act of 1969]   

Here is a selection of highlights from the thousand-year history of charitable trusts.

The Early History of Charitable Trusts and Trust-Like Gifts

The idea of creating trusts to realize personal and charitable objectives has deep international roots. Arrangements for holding and administering property “either for the benefit of someone else or to further some particular purpose,”⁷ including charitable purposes, were available in medieval European countries before the year 1000.

Compiling evidence about the history of trusts is a relatively recent activity.  Today there are substantial reference works devoted to the law of trusts, but the concept of “trusts” as the subject of a unified body of law began in the 1800s.⁸ People used trusts and related arrangements for many centuries before scholars developed a systematic legal framework that enabled rigorous research.

There is a growing consensus that, while Roman law did not recognize a trust, Roman concepts provided essential elements in the development of charitable trusts in Europe. Familiar modern words such as annuity, beneficiary, charity, donation, eleemosynary, executor, fiduciary, residuum, and testament have Latin roots.

An important trust-like arrangement called a usufruct was authorized under Roman law. The use of property (usually land) could be transferred temporarily to another person, who enjoyed beneficial use of the property (its “fruits”) without the right to change or sell the property itself.  The person receiving the right to use land could grow and sell crops or maintain livestock, for example.  After a period of years or the death of the beneficiary, the usufruct would end, and use of the land would revert to the property owner.

The medieval church adapted the Roman concept of usufruct for charitable purposes. One of the most important and influential examples of gifts that involve payments back to a donor for life with a surplus amount (residuum) for charitable purposes dates to the sixth century.  Life-income gifts were encouraged in the rules of the monastic communities founded by Saint Benedict of Nursia (480–543). Benedictine monks encouraged wealthy parents to help prepare their sons and daughters for entering religious communities by giving property to the church rather than to their children.

While the monks preferred gifts with no strings attached, they acknowledged that some parents were unable or unwilling to make valuable gifts unless they received an assurance of cash payments from the religious community.  Benedict’s Rule 59 encouraged parents to make gifts in exchange for lifelong income:

[if parents] wish to gain merit by offering some alms to the monastery, they may make a formal donation of the property they want to give to the monastery. If they wish, they may reserve the income for themselves.

Benedict’s Latin sentence ends in a very important word:

Vel certe si hoc facere noluerint et aliquid offerre volunt in eleemosynam monasterio donationem, reservato sibi, si ita voluerint, usufructu. [my emphasis]⁹

This is a mirror image of the original Roman idea of a usufruct, since ownership of the property itself was transferred to the Benedictines, and the income generated by the property (its fruits) was retained by the donors during their lives. Though the transferred property was owned by the Benedictines and not held in trust, there is a fiduciary relationship that is not distant from a trustee.

The idea of making life-income gifts to Benedictine communities through modified Roman usufructs spread throughout the Mediterranean world in the 6th century.  The Rule of St. Benedict, including its encouragement of life-income gifts, remains in wide use today.

An Islamic charitable endowment called a waqf was documented in the year 876. Some scholars speculate that the waqf may have influenced English trusts. For more information see notes below.¹⁰

Pioneering legal historians Sir Frederick Pollock and Frederic William Maitland traced the practice of giving land to a clergyman “for the use of the church” to an ancient period “far before the Norman Conquest” in 1066.¹¹ As early as the year 825, Maitland “found evidence of conveyances to bishops to the use of churches and monasteries.”¹²

During the Crusades (1095-1291), an English warrior might travel to distant countries and convey title to a trusted friend to safeguard the ownership of land, buildings, and other property, while providing support for the warrior’s wife and children until his return. Devout, wealthy donors could entrust gifts of land or money to a fiduciary with the power to direct income or principal to a religious institution’s chapel, library, or hospital. Trusts were enforceable under the church’s Canon Law, and later in Chancery Court.¹³

Charitable Trusts were Popularized by Franciscans in the 1200s

The earliest large-scale application of a recognizable trust arrangement came about through Franciscan missionaries. Fifteen years after the founding of their order in Italy by St. Francis of Assisi, nine Franciscan friars arrived in Dover, England, on September 10, 1224. Barefooted, they walked 16 miles to the city of Canterbury.  Sympathetic donors wished to provide the friars with living quarters, a chapel, and land for farming, but strict Franciscan vows of poverty were a challenge, as described by Frederic Maitland:

The rule of their order prescribes the most perfect poverty: they are not to have any wealth at all.  They differ from monks.  The individual monks can own nothing, but a community of monks, an abbey, a priory, may own land and will often be very rich.  On the other hand, friars’ priories are not to have property either individually or collectively.  Still, despite this high ideal, it becomes plain that they must have at least some dormitory to sleep in.  They have come as missionaries to the towns.  The device is adopted of having land conveyed to the borough community to the use of the friars . . .  Very soon in various towns in England a good deal of land is held thus.¹⁴

The creative use of trusts for the Franciscans was widely imitated.  In 1225 a wealthy London merchant arranged for Franciscans in London to use land.  A house was constructed, for which King Henry III sent timber from Windsor forest.  Another contingent of Franciscans moved to the university town of Oxford, where they received a house and garden.  All these properties were owned by trusts managed by cities for the use of the friars.

Between 1225-1230 at least 13 Franciscan communities were founded under similar trust arrangements in places such as Bristol, Cambridge, Lincoln, Salisbury, and York. For the next several hundred years, while maintaining their vows of poverty, the Franciscans received gifts through charitable trusts. These gifts were most often given by subscription (annual pledge payments) by living donors. Substantial trust additions came through bequests.

The Black Plague and the effects of poverty diminished the population of the Franciscans in England.  By the time of the Dissolution of the monasteries in 1538 and the dismissal of the friars, all that remained of value in their trusts was the use of real estate, which was soon redirected to other purposes.

Charitable Trust Discoveries and the Statute of Charitable Uses (1601)

Trusts for the benefit of the church or for the poor were known as charitable “uses”: title was held in a trust, while the fruits of the trust property were used by a beneficiary. In modern law, what was called a use we now call a trust.

Trusts became quite popular in France and England during the Renaissance.  By the time of Shakespeare and Queen Elizabeth, English donors had created thousands of charitable trusts.

The extent of these trusts was documented in a massive research project begun in 1818, when a commission was charged with recording the history, development, donors, purposes, and assets of the country’s existing charitable trusts:

It was in the nineteenth century, however, that the first detailed general surveys of English and Welsh charities were made. In August 1818, amidst revived interest in the more effective utilization of charitable funds, the Brougham Commission was appointed by parliament to examine the state of charitable trusts for educational purposes in England. With the renewal and widening of its powers in the following year, it spent almost two decades investigating charitable trusts of all types in England and Wales … The establishment of charitable trusts, gifts or bequests made in perpetuity for specified charitable purposes, was common in England and Wales between the sixteenth and nineteenth centuries, and the Brougham Commission’s completed survey listed nearly 29,000.

Though their existence is well known, less generally appreciated is the wide range of their trustees’ activities and in particular the importance they assumed in the life of certain towns, especially during the eighteenth and nineteenth centuries. Most familiar amongst their functions is the extensive relief of poverty: many maintained almshouses and workhouses or relieved the needy by gifts in cash, clothing, blankets, fuel and bread; or by pensions and interest-free loans. Also manifest is the provision and maintenance of educational institutions such as grammar and charity schools, and the finance of schemes for apprenticing pauper children. Yet beyond these lay many other activities …¹⁵

Records for many of the charitable trusts created before the 1500s had long since disappeared by the 1800s, but much evidence remained. The folio-sized reports on 29,000 charitable trusts compiled by the Brougham Commission researchers filled 32 large volumes.

There were so many charitable trusts in England in the 1500s, and so many clear abuses of them, that an influential Statute of Charitable Uses was enacted by Parliament in 1601 to prevent self-dealing. The Preamble to the statute listed many of the purposes that promote the general welfare. The body of the statute provided a review process to prevent the unacceptable use of trust assets for personal benefits.

Here are the first three paragraphs:

The Statute of Charitable Uses: An Act to Redress the Misemployment of Lands, Goods,  Stocks, and Money Heretofore Given to Charitable Uses

Whereas lands, tenements, rents, annuities, profits, inheritances, goods, chattels, money, and stocks of money have been heretofore given limited appointed and assigned, as well by the Queen’s most excellent majesty and her noble progenitors, as by sundry other well disposed persons.

Some for relief of aged, impotent, and poor people, some for maintenance of sick and maimed soldiers and marines, schools of learning, free schools, and scholars in universities, some for repair of bridges, ports, havens, causeways, churches, seabanks, and highways, some for education and preferment of orphans, some for or towards relief stock or maintenance for houses of correction, some for marriages of poor maids, some for support, aid and help of young tradesmen, handicraftsmen, and persons decayed, and others for relief or redemption of prisoners or captives, and for aid or ease of any poor inhabitant concerning payment of Fifteens [a tax], setting out of soldiers and other taxes.

Which lands, tenements, rents, annuities, profits, inheritances, goods, chattels, money, and stocks of money nevertheless have not been employed according to the charitable intents of the givers and founders thereof, by reason of fraudulent breeches of trust and negligence in those that should pay, deliver, and employ the same.¹⁶

After listing approved activities (such as “relief of aged, impotent and poor people”) that became defined as charitable purposes in the laws of Great Britain and the United States, the Preamble pointed out typical abuses by trustees, observing that some charitable trust assets:

… have not been employed according to the charitable intent of the givers and founders thereof, by reason of frauds, breaches of trust, and negligence in those that should pay, deliver and employ the same.

W.K. Jordan noted that the Statute gave donors confidence in the legal foundations of their gift arrangements, and that gifts would be used as donors intended:

The great Elizabethan statute of charitable trusts was notable, then, not because it created charitable uses, but rather because it codified a body of law badly wanting classical statement and because it vastly stimulated constructive and well considered charitable giving by lending full and most formidable protection to the aspirations of donors.¹⁷

The identification of tax-exempt charitable organizations in section 501©(3) of the U.S. Internal Revenue Code is derived from the Elizabethan statute.  Robert Bremner begins his useful list of important dates in American philanthropy with this 1601 statute, and it is the first document contained in Making the Nonprofit Sector in the United States: A Reader.¹⁸

Note also the range of financial and noncash assets given through trusts: “lands, tenements, rents, annuities, profits, inheritances, goods, chattels, money, and stocks of money.” People in British-run American colonies brought with them a tradition of giving whatever they owned. Like today, most family wealth was not held in the form of cash. [See my article Surprisingly Complex Non-Cash Gifts.]

Historian Joseph Smith recorded an early American trust (though not a trust with a charitable purpose) created in 1641 in western Massachusetts by “the widdow Horton” to provide trust income and principal for the support and education of her two sons. By arranging a trust, Ms. Horton controlled the use of her property after her wedding to benefit her sons by a prior marriage.¹⁹

While the purpose of the Elizabethan statute in 1601 was to reform longstanding practices, its intent was obscured over two centuries. After 1800, the meaning of the statute was misunderstood by American jurists and legislators, who assumed that the legal authority for creating charitable trusts had been provided by the statute, rather than by the long experience of donors and precedents embodied in common law.

As recounted in the Introduction of this article, it took 50 years for historical proof to change the course of the American law of charitable trusts. In its 1844 decision Vidal v. Girard’s Executors the U.S. Supreme Court acknowledged that legal historians working with the Brougham Commission had uncovered documentation for many charitable trusts that predated the 1601 statute. The court ruled that charitable trusts were valid under common law in the U.S., even in states that had revoked the Statute of Charitable Uses.

Research Needed on Early American Charitable Remainder Trusts

Until the Tax Reform Act of 1969 compelled the use of unitrust and annuity trust forms of payments, charitable remainder trusts in the U.S. were called life income trusts, because the trusts paid out the actual income earned by the trust principal.

For example, in 1779 Eleazar Wheelock, founder and first president of Dartmouth College, included a life income trust in his will to provide income to his wife and son. He directed that the trust remainder should endow a fund to support the college president or a professor:

I have disposed of for that purpose to the amount of upwards of a thousand pounds lawful money, fifty pounds of the interest of which I devote as above said to the support of my said son Ralph as above said, the rest of said interest whatever it may be, I give to be improved towards the support of his mother during her life as long as she shall have occasion for it for her own support, and when they, my said wife and my said son Ralph shall be by any means either by death or any favourable circumstances in life in no necessity thereof for their support, I give and bequeath the whole debt, that now is or shall be due to me from the school both principal and interest at my decease to the only use and benefit of said school forever to be improved at the discretion and by the direction of the honourable corporation towards the support of the President or a professor as they shall judge most necessary or convenient.²⁰

Life income trusts were administered by banks or trust firms whose charter empowered them to do so until 1828, when the Chancery Court of New York State approved a life income trust created in the will of Nicholas Anderson to be administered by St. George’s Episcopal Church, incorporated in lower Manhattan.²¹

Anderson bequeathed $4,000 in trust for the church to invest and to pay the income to his housekeeper for her life, with the remainder to become an endowed fund of the church.  The church invested the trust principal in municipal bonds and mortgages that paid the housekeeper the trust income of “at least 6% per year.”

Lawrence Friedman discusses a charitable life income trust contest in the case of Harvard College v. Amory (1830),²² in which the Supreme Court of Massachusetts approved the “prudent investor” rule that allows trustees freedom in investing trust assets as “men of prudence, discretion and intelligence manage their own affairs.” Friedman observed that this case encouraged the rise of private, professional trustees, but does not comment on the fact that the donor’s wife received payments from the trust during her life, with the remainder distributed to Harvard and Massachusetts General Hospital.

The American Bible Society has documented several life income trusts created in the mid-1800s. Aware of the historical importance of these gifts, in 1964, Eric M. North, general secretary of the American Bible Society, wrote an account of its “Annuity and Trust Agreements” from 1831 to 1848. He and his staff combed through minutes, reports, and financial records to document the gifts as meticulously as possible. Many of the records had already been lost.²³

The common practice of adding a trust power that provides a person with income for life or a number of years, with the remainder going towards a charitable purpose, has been explored in great detail by modern writers, but was unremarkable to American legal historians until the 20^th century.

For example, the sole reason that an influential reference book on trust law published in 1862 gave two examples of trusts that provided life income to surviving family members was to analyze a contest over the trust remainders.²⁴ A 938-page text on trust law published in 1872 does not mention life income provisions with a charitable remainder.²⁵

This gap in documentation for the history of charitable life income trusts before the 20^th century is challenging. It would be reasonable to assume that early American settlers created charitable trusts as their ancestors had done in their countries of origin. Evidence of charitable trusts from 1600-1800 is missing. In particular, life income powers are mentioned in 19^th century texts discussing charitable trusts (such as in the Anderson and Hart trust cases cited above), but trust agreements are rarely published.

In my experience, law firms and banks that created or administered personal charitable trusts before 1900 have not preserved those trust agreements in their archives, whether to protect the privacy of clients or simply to reduce the volume of paper files relating to terminated trusts. I am not aware of a systematic effort to search the archives of American nonprofit organizations for early charitable trust agreements.

I would be very pleased to learn of any examples of early charitable trust agreements: rbrown.pghistory@gmail.com.

The most popular American of his time, George Washington led the war for independence against Great Britain.  He was chosen to preside over the Constitutional Convention. In 1789 he was elected President of the new nation by Congress. Washington wrote his own carefully-planned will. At his death in 1799, he was one of America’s wealthiest citizens, owning 33,000 acres of land in five states and the Northwest Territory.

Historian Jill Lepore observes that “Washington’s will was published in newspapers from Maine to Georgia, as he knew it would be.”  (These Truths: A History of the United States, p. 147)

He left most of his estate to his wife Martha, after making specific bequests for various purposes.  Washington’s first specific bequest provisions, and the longest section of his will, dealt with an objective close to his heart: freeing, supporting, and educating his slaves.

Giving his slaves their freedom and preparing them for better lives was very important to Washington.  He directed that “all the Slaves which I hold … shall receive their freedom,” shall be “comfortably clothed and fed … taught to read & write; and to be brought up to some useful occupation.”  His 123 slaves were freed shortly before the death of his wife Martha.

Washington never attended college, but education was his top priority.  In addition to educating his former slaves, he and made specific bequests to Alexandria Academy for a scholarship fund, to Liberty Hall Academy (now Washington and Lee University), and to a proposed college in the U.S. capital that was founded in 1821 as George Washington University.

Founding Father Benjamin Franklin was the leading champion of private, nonprofit organizations in America.  For example, the Union Fire Company of Philadelphia (known as Benjamin Franklin’s “Bucket Brigade”) was a volunteer fire department formed in 1736.

In his will, Franklin made specific bequests in 1790 to grammar schools in Boston, and for improving travel on the Schuylkill River. He originally directed a gift to the Pennsylvania Hospital, but in a codicil Franklin revoked that bequest and instead set up two complex and ambitious trusts: 1,000 pounds sterling (roughly $150,000 in today’s dollars) for a revolving loan fund to benefit young, married tradesmen in Boston, and 1,000 pounds for the same purpose in Philadelphia. Management of Franklin’s trusts was uneven. After 200 years, when his funds were disbursed according to his directions, his Boston fund had grown to $4.5 million, while his Philadelphia fund was worth $2 million.

In 1836, U.S. President James Madison, “Father of the Constitution,” gave his personal library and $1,500 to the University of Virginia, and $1,000 each to the libraries at Princeton University and a college in Uniontown, Pennsylvania.  Madison’s bequest was the largest monetary gift to Princeton’s library until after the Civil War.

Statutory law did not create philanthropy in America, which was baked into the nation’s character from the start. Freedom to worship as they chose, including freedom from persecution by an official state church, attracted many of the colonists to America. Drafters of the United States Constitution assumed that people would form private churches and synagogues, schools and colleges, craft guilds, libraries, and many other voluntary associations independent from the federal government.

In 1789, the Constitution of the United States of America became the legal foundation for charitable gift planning through three co-equal branches of government: laws affecting charitable giving are enacted by Congress; tax regulations and rulings are issued by a Treasury Department and its Internal Revenue Service (IRS); and judicial review is provided by a federal court system, including the U.S. Supreme Court.

The longstanding American rights to form private, nonprofit organizations independent from the federal government are articulated in the First Amendment to the Constitution, adopted in 1791:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Touring America in 1831, Alexis de Tocqueville found it remarkable that people here naturally turned to private nonprofit organizations to accomplish public purposes that were a state responsibility in his home country of France:

Americans of all ages, all conditions, and all dispositions constantly form associations …  of a thousand kinds, religious, moral, serious, futile, general or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; in this manner they found hospitals, prisons, and schools.

Democracy in America, published in 1835-1840

In 1829 James Smithson, an Englishman, died without visiting the U.S.  Smithson wrote his own will, leaving his estate to his nephew, but if the nephew were to die without children, “I bequeath the whole of my property . . . to the United States of America, to be found at Washington, under the name of the Smithsonian Institution, an Establishment for the increase & diffusion of Knowledge among men.”  His nephew died in 1835 and had no children.

In 1838, Richard Rush brought 105 sacks of gold sovereign coins from Smithson’s estate to the U.S. Mint in Philadelphia, where they were re-coined into American currency, producing $508,318.46, equivalent to about $12 million in 2019 dollars.

It was not clear that Congress would approve a large federal institution in Washington, D.C., given the focus on protecting states’ rights and opposition to expanding the national government.  Should America build a monument to a British donor two decades after the War of 1812, and 70 years after the Declaration of Independence from Great Britain had been signed by Dr. Benjamin Rush, Richard’s father?  The bill to establish the Smithsonian passed narrowly.  In 1846, President James K. Polk signed the bill that created the Smithsonian Institution, which is now the world’s largest and most popular museum and research complex.

“We hold these truths to be self-evident: that all men are created equal.”

In 1831, Yale issued an innovative charitable gift annuity in exchange for John Trumbull’s best paintings of George Washington and the American Revolution. The planner driving the complex gift negotiations was Yale scientist Benjamin Silliman. The annuity contract was drafted by attorney Peter Jay, son of John Jay, the first Chief Justice of the United States. Annuity payments were financed by selling tickets to America’s first college art gallery.

In Vidal v. Girard’s Executors (1844), the Supreme Court validated charitable trusts under longstanding national traditions of common law, allowing private donors to create trusts for public purposes in states that had not enacted statutes recognizing charitable trusts.

The American Bible Society (ABS) accepted the management of a life income trust in 1841, and issued a gift annuity contract in 1843. ABS soon had second thoughts about the legal and financial risks of its life income gift program. Building on the Vidal decision, ABS board member Luther Bradish wrote a powerful legal defense and administrative guidelines for nonprofit management of life income trusts and gift annuities, now known as On the Matter of Accepting Trusts (1848), which led ABS to develop America’s largest gift annuity program and influenced hundreds of other nonprofits.

In the mid-19^th century, states began to provide protections for consumers of financial products.  A heroic figure in that story is Elizur Wright (1804-1885), an actuary who strengthened consumer confidence in financial contracts based on a human life, such as life insurance and annuities.  Wright, a colorful character who fathered 18 children, fought for the abolition of slavery, and personally calculated the reserve values for every insurance policy issued in the State of Massachusetts using the Arithmeter he invented (pictured below), became one of the first Insurance Commissioners in the United States.

Often called the “father of life insurance,” Wright campaigned for four decades against abuses in the fledgling American industry.  When he began his crusade in the 1840s, families concerned about the untimely death of a wage-earner had reasons to be skeptical towards financial products.  In the absence of standards for holding companies accountable, there were obvious frauds, such as unincorporated “wildcat” insurance outfits fronted by “lightning agents” who pocketed premiums on policies and left town before customers knew they had been swindled.  A common, unfair business practices was immediate cancellation of policies when a single premium payment was missed, with no recognition of built-up cash surrender value.

Many insurance companies’ business models were not founded on established principles of actuarial science.  Honest businessmen could be acting in good faith but with inadequate understanding of how to calculate appropriate reserve funds. Competitive pressure from cut-rate premiums was increasing.  Responsible insurers feared that consumers, unable to tell the difference between sound and unsound practices, would shun the purchase of life insurance altogether.

Elizur Wright deserves credit for enhancing American consumer confidence in the security of financial products based on human lives, and for his leading role in constructing a public policy framework.  Wright lobbied successfully for legislation in Massachusetts compelling life insurance companies to open their books and be publicly accountable for business practices, and developed standards based on actuarial science that were later adopted by nonprofit charitable gift annuity programs.

He personally calculated the reserve values for every life insurance policy issued in Massachusetts, using a machine he invented called the Arithmeter.