Leverage Life Insurance to Leave a Lifetime Legacy

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By JoAnna Dossman, annuity and insurance planning consultant, 1st Global

Americans are charitable by nature. From religious organizations to universities to political groups to global foundations, Americans donated nearly $300 billion in 2011, according to the Giving USA 2012 annual report. While many Americans give on a monthly or annual basis, few have a comprehensive plan in place to leave a lifetime legacy of their philanthropic endeavors. By helping clients leverage life insurance capabilities, financial advisors, CPAs and other wealth management professionals can significantly magnify the impact of their charity.

Maximized Giving

Imagine this scenario: John is a 45-year-old who contributes $5,000 annually to his church. If John contributes this amount over the next 20 years, his total charitable gift would be $100,000. However, if John contributes to a life insurance policy with a $5,000 annual premium for the same 20 years, his total gift could reach more than $500,000. This could be the difference between funding the purchase of new textbooks for the church’s school and the building of a whole new library.

How is this possible? Current tax law allows for each individual to give up to $13,000 per year without paying gift tax, called an annual exclusion gift. By using an irrevocable life insurance trust (ILIT) to purchase life insurance with these gifts, the death benefit is left within the trust and remains free of estate and income tax. The ILIT can then distribute the proceeds to the individuals, charities or organizations of your client’s choosing – more importantly, in the manner of his or her choosing.

You also may be able to help clients achieve their charitable objectives through two types of charitable trusts: charitable remainder trusts and charitable lead trusts. Charitable remainder trusts are irrevocable structures established by a donor to provide an income stream to the income beneficiary, while the public charity or private foundation receives the remainder value when the trust terminates. Charitable lead trusts make payments, either of a fixed amount (charitable lead annuity trust) or a percentage of trust principal (charitable lead unitrust) to charity during its term. At the end of the trust term, the remainder can either go back to the donor or to heirs named by the donor.

Remember Tax Deductions

In addition to helping clients leverage their gifts for their favorite charities, you may also be able to increase their tax deductions for those donations.

The first step for your clients to get the most out of their charitable contributions is for them to choose a charity, organization or effort they would like to support. Let your clients know that not all charities are created equal in terms of tax deductions. In an article published this spring, CharityNavigator.com points out that some 501(c)(4) nonprofit organizations, such as Disabled Veterans of America and the National Rifle Association, can spend significant portions of their budgets on lobbying efforts, so not all donations made to them are tax-deductible. Research charities’ tax statuses on websites such as the Better Business Bureau to make sure the donation your client wants to make will be tax-deductible. The BBB site also gives information on how much of each donation goes to help the people or cause in question, and how much goes to administrative and event costs. This is valuable information for your clients to have when deciding among multiple charities to support.

Many of your clients will have no idea that they can maximize the impact of their charitable contributions by leveraging life insurance, or that some donations aren’t tax-deductible. Bring it up during your next scheduled client review meeting. Your clients will appreciate the information and their trust in your advice will deepen, creating a stronger client-advisor relationship.

1st Global Capital Corp. is a member of FINRA and SIPC and is headquartered at 8150 N. Central Expressway, Suite 500 in Dallas, Texas 75206; (214) 265-1201. Additional information about 1st Global is available via the Internet at www.1stGlobal.com.

1st Global was founded by CPAs on the belief that accounting, tax and estate planning firms are uniquely qualified to provide comprehensive wealth management services to their clients. Each affiliated firm is provided with education, technology, business-building framework and client solutions that make these firms leaders in their professions through dedicated professional client relationships built around wealth management.

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