You Can Be a
Philanthropist!
What makes Ebenezer Scrooge such a
compelling character in A Christmas Carol
is that his stinginess is uncharacteristic of most people. Most people
genuinely enjoy sharing what they can with their favorite charity. The problem is most of us believe we can’t
afford to give nearly as much as we’d like.
We may be wrong. Here’s a story that makes the point.
In reviewing a client’s coverage, an agent
looked over several years of tax records.
He noticed that his client consistently gave a generous annual gift to a
small church. The client explained that
the church had been part of his family for generations. The agent asked, “Why
should your lifetime support end with your death?”
Visibly startled, the man said what most of
us probably would say. He knew how
important his contributions had been to his church. Sure, he’d love to support it after death. But he didn’t have that kind of money. The agent explained how he could, indeed,
continue to support his boyhood church – even after death.
Here’s what the agent suggested to his
client.
Purchase a $250,000 life insurance
policy. At death, death benefit proceeds
from the policy will replace the annual contribution. Here’s how to make this happen. The church would own the policy. The man would make tax-deductible donations
to the church. The church would then pay
the premium. Depending on the premium
amount, the policy could be fully paid in ten to twelve years, although there
is no guarantee. In many cases, it’s
possible that the tax-deduction might offset all or part of the cost of the
premium, thus making the arrangement very affordable.
The
client was pleased and surprised to see how his lifelong habit of supporting
his family‘s church could continue in perpetuity.
Consider this case. An elderly couple was concerned about their
investments. In a way it was a nice
problem, because the couple’s stock market investments over the years had appreciated
to about one million dollars. The
problem was that the couple didn’t want their money tied up in low-yielding,
higher-risk common stocks. They wanted
conservative investments that would provide more interest income.
Why didn’t they just sell their portfolio
of stocks and buy less risky, higher yielding investments? Because they’d have to pay an enormous
capital gains tax.
Here is one possible way to deal with this
situation.
* Create a
Charitable Remainder Trust (CRT)
* Gift the
stock portfolio to the CRT
Gifting the stock to a nonprofit CRT will
trigger a tax deduction. In this
example, the deduction was more than a third of the $1,000,000. (The amount of a CRT deduction and the
ability to take it are variable factors dependent on a taxpayer’s financial
position, life expectancy, and other factors.
Check with your professional tax advisor for the details.)
What happens next? The CRT sells the couple’s stock and buys
conservative investments with the potential for higher yields. Because the nonprofit CRT executed the sale,
no capital gains tax is due. Moreover,
the couple may receive income from the CRT for as long as either of them lives
(subject to the risk of the investment).
Upon the death of the surviving spouse, any remaining CRT assets would
be given to a charity or charities chosen by the couple.
What about the couple’s children and their
inheritance?
There’s another financial strategy that can
be employed to ensure that the kids are not disinherited. It involves the purchase of a joint
survivorship life insurance policy large enough to replace the assets that went
into the charitable trust. The cash to
pay for the premiums could come from the couple’s tax deductions and potential
increased yields from investments in the trust.
Here’s another example of how financial
strategies can be applied for charitable giving. A wealthy woman had completed her estate
planning carefully. Her family was
provided for. Everything seemed to be in
order. Except this lady had a passion
for her university and a local museum.
She already had left money for each, but wanted to do more.
The solution was to have each institution
purchase a one million dollar insurance policy and name the respective
institution as the owner of its policy.
In this way, premiums paid by the donor would be tax deductible, and
thereby more affordable.
A problem was solved and, in the process,
funding was provided for a private institution.
The woman felt gratified to be able to express her personal generosity
in a very real way.
Sonja Hayes, J.D., L.L.M., advanced
marketing attorney for GenAmerica Financial Corporation in
“The elite wealthy used gifting strategies
like these for years,” Hayes continues. “Now,
these options are available to many more of us. And, if we are charitably inclined, we should
at least look into the possibilities.”
Kevin J. McCann of Kevin J. McCann, LLC is
an independent insurance agent in Chesterfield,
Material in the article is for informational
purposes only and is not intended for tax, lending, or legal purposes. Readers
should consult their own professional tax advisor for additional details.
The information herein is based on sources believed to be reliable,
but accuracy cannot be guaranteed. The
examples used are hypothetical only and not meant to be representative of
any client and do not ensure future success.