In this scenario, the donor has applied for a life insurance policy that pays out in 5 years.
Donations are beneficiaries. The donor writes her $6,500 check to the charity every year for five years.
The company matches checks for $6,500. So the fund receives a total of $13,000 each year.
This fund will use $6,500 to pay for life insurance premiums. The charity then owns the life insurance policy.
An additional $5,000 remains in the Foundation, and the Foundation spends $1,500 each year on scholarships.
After five years, the pension will be completed and the life insurance benefit will be paid.
As donors pass, the fund grows into a super-fund.
9. Offer upfront cash gifts and planned gifts of life insurance without taking cash out of the donor’s pocket.
This is basically a four-step plan:
step 1: Use land or other assets as collateral for loans.
Step 2: Lenders issue loans.
Step 3: This loan provides cash to charities, funds the wishes of donors and sets up an irrevocable life insurance trust (ILIT) to purchase life insurance policies.
Step 4: The collateral from the first step is released when the ILIT cash value value equals the collateral value.
ILIT passes funds to charities and heirs.
This is sophisticated premium finance. To implement this type of arrangement, you and your client will need to work with her highly qualified ILIT specialist.
10. Provide insurance policies to charities that manage portfolios of life insurance policies and use the proceeds to provide a steady stream of cash to other designated charities.
This is the newest, quickest and easiest way to donate life insurance. All financial advisors should discuss this approach with their clients.
Donors donate policies to a specific 501(c)(3) non-profit charitable organization (“Charity A”) created for the benefit of another charitable organization.
Once Charity A accepts the policy, donors select the ultimate charity they want to support.
Charity A will bear all costs associated with keeping the policy in force until maturity. This eliminates the need for the donor or eventual charity to pay insurance premiums.
Charity A also administers policies and manages portfolios. This eliminates the need for the ultimate charity or donor to have administrative capabilities.
Once the donor completes providing the insurance policy to Charity A, the donor receives a charitable income tax credit.
Charity A relies on donor policies along with a sufficient number of other policies to achieve actuarial reliability. When the policy expires, the Trust distributes the money to all charities designated by the donor. This distribution is based on the difference between the cost of premiums and the amount of benefits received.
In other words, the donor’s ultimate charity doesn’t have to wait for the donor to die to receive the distribution.
The donor’s ultimate charity receives distributions from the trust for the life of the trust regardless of whether the particular donor is alive or dead.
This is a paradigm shift, allowing some donors to see outstanding works funded with life insurance while they are alive.
Donors no longer have to pay premiums for donated policies, improving donor cash flow.
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As you can see, life insurance offers great flexibility to clients who want to include charitable contributions in their long-term financial and estate planning.
• Life insurance premiums are paid in cash. Life insurance gifts are generally not subject to possible deductions for probate costs. Settlement delays generally do not occur unless the death benefit is paid to an estate.
• The gift of life insurance is useful. Changing owners and/or beneficiaries of a life insurance policy is easier and more cost-effective than creating a trust, making or changing a will, or arranging other forms of donations There are cases.
• Life insurance gifts are confidential. Life insurance policies are not a matter of public record. Thus, complete privacy is guaranteed when giving.
• The gift of life insurance is economical. Under certain circumstances, the size of a person’s gift may actually be larger than the original cost.
Charitable giving and life insurance have gone hand in hand for years.
If you are not actively involved in a charity plan, you should consider working with a charity planning specialist to help your client structure a life insurance donation that can support their favorite cause.
David B. Simon is an attorney, co-founder and president of the Insuring A Better World Fund in Chicago. The fund helps donors use their unwanted life insurance policies to support charitable causes.
