For numerous clients at our firm, charitable giving constitutes a significant portion of their legacy and financial planning. This philanthropy, whether directed towards their church, alma mater, or a cherished cause, represents an opportunity to share their successes with the broader community.
Our advisory work primarily focuses on estate planning, echoing the timeless principle: your wealth can benefit your family, charity, or the government. In our experience, many individuals include a specific monetary bequest in their living wills for charitable purposes. While this method offers the flexibility to modify their plans, it also presents an opportunity to enhance the gift's tax efficiency without compromising the donor's objectives.
A Smarter Way to Give: Sheryl’s Story
Consider Sheryl, a 50-year-old executive with a substantial annual income, who aspired to donate $10 million to her alma mater upon her passing. After ensuring her children's inheritance met her expectations, Sheryl initially opted to include this bequest in her will, a strategy beneficial for mitigating estate taxes given her potential taxable estate. However, we proposed an alternative approach: utilizing life insurance to achieve her philanthropic goal.
Here's how it worked: The university purchased a life insurance policy with a $10 million death benefit on Sheryl's life. In exchange, Sheryl donated appreciated stock with low basis (worth $570,000 annually for three years) to cover the premiums. This kept her charitable contributions below 30% of her Adjusted Gross Income (AGI). The result? Sheryl could pre-fund her $10 million gift with a tax-deductible donation of $1.71 million today.
This strategy offered significant benefits:
Enhanced Tax Advantages: Sheryl's $1.71 million donation, considering the embedded gain, effectively became a $1.3 million gift to the university. Additionally, she saved a substantial $850,000 in income taxes.
Immediate Impact and Recognition: Sheryl received immediate recognition for her generosity, achieving distinguished donor status and experiencing the multifaceted rewards of giving – the joy of philanthropy, public acknowledgment, and significant tax benefits.
At NFP Insurance Solutions, we specialize in identifying innovative strategies like these to maximize the impact of your charitable endeavors while optimizing financial and tax benefits. Our goal is to ensure that every act of giving not only fulfills our clients' altruistic desires but also aligns with their broader financial and estate planning objectives, maximizing the effectiveness of each contribution.
Given the complexities involved, working with advisors with expertise in this area is crucial. This involves working with the non-profits as well as the insurance companies to make sure that everyone understands the nuances. As an added bonus, non-profits love this planning strategy because this takes what would be a revocable gift and makes it irrevocable.
By working together, we can create a personalized giving plan that maximizes your client’s charitable impact and aligns perfectly with their financial goals and legacy aspirations. Contact us today to discuss how we can help you make a lasting difference.