Charitable Donation

Can I Use My Life Insurance to Give to Charity?

As Forbes explains in the article “2 Ways To Combine Charitable Giving And Life Insurance,” one of the core products for protecting wealth is life insurance. As you age, your need for life insurance may lessen, but sometimes it will increase. If you have a life insurance policy that you no longer need, one option might be to use your life insurance to give to charity. You can simply donate your policy to a charity of your choosing.  There are several ways that life insurance policies can be gifted or used for charitable purposes.

Donate your life insurance policy to charity
Use your life insurance policy to make a charitable donation.

Gift Your Existing Policy. You can simply give away an existing policy, if you no longer need the policy for estate liquidity or estate taxes. You could gift the policy outright to your favorite charity or use a Donor Advised Fund (DAF). If you give the policy to a charity outright, you can change ownership of the policy and pretty much be done with it. You might get a charitable income tax deduction for the value of the policy at the time of the gift (it’s measured by the sum of the interpolated terminal reserve plus unearned premiums rather than the death benefit amount).

If the policy has ongoing premiums, those would be the responsibility of the charity. However, you can help them, by continuing to make the premium payments on behalf of the charity by directly paying the insurance company. You could also pay the value of the premiums to the charity and let it pay the insurance company. The premiums would then be tax deductible, since the charity owns the policy.

You could also simplify your life as the donor, where you could convert the policy to a reduced and paid-up policy and donate it with no ongoing premiums needed. This may be easier, because you don’t need to create an additional outflow of cash, after the gift is made to keep the policy in effect for the charity. You just transfer the policy value without any further obligations.

Charities typically like to receive gifts of policies with no ongoing premiums, because it eliminates the task of sending the donor a gift receipt, every time a premium payment is made. It also eliminates the issue of whether the donor or the charity is to pay future premiums.

Gift a New Life Insurance Policy. Another tact is to give a new life insurance policy. This can be a bit more involved, because if the charity’s going to be the owner, they must have an insurable interest in the donor. However, if you have a strong ongoing relationship with the charity, this requirement can be satisfied. You can then pay up the policy completely at the start or make ongoing premium payments over time.

Reference: Forbes (March 6, 2019) “2 Ways To Combine Charitable Giving And Life Insurance”

How Do I Include Charitable Giving in My Estate Plan?

One approach frequently employed to give to charity, is to donate at the time of your death. Including charitable giving into an estate plan, is great way to support a favorite charity.

Baltimore Voice’s recent article, “Estate planning and charitable giving,” notes that there are several ways to incorporate charitable giving into an estate plan.

Charitable Giving
Incorporating charitable giving in your estate plan is one of the most common ways to give to charity.

Dictate giving in your will. When looking into charitable giving and estate planning, many people may start to feel intimidated by estate taxes, thinking that their family members won’t get as much of their money as they hoped. However, including a charitable contribution in your estate plan will decrease estate tax liabilities, which will help to maximize the final value of the estate for your family. Talk to an experienced estate attorney to be certain that your donations are set out correctly in your will.

Donate your retirement account. Another way to leverage your estate plan, is to designate the charity of your choice as the beneficiary of your retirement account. Note that charities are exempt from both income and estate taxes. In choosing this option, you guarantee that your favorite charity will receive 100% of the account’s value, when it’s liquidated.

A charitable trust. Charitable trusts are another way to give back through estate planning. There is what is known as a split-interest trust that lets you donate assets to a charity but retain some of the benefits of holding the assets. A split-interest trust funds a trust in the charity’s name. The person who opens one, receives a tax deduction when money is transferred into the trust. However, the donors still control the assets in the trust, and it’s passed onto the charity at the time of their death. There are several options for charitable trusts, so speak to a qualified estate planning attorney to help you choose the best one for you.

Charitable giving is a component of many estate plans. Talk to your attorney about your options and select the one that’s most beneficial to you, your family and the charities you want to support.

Reference: Baltimore Voice (January 27, 2019) “Estate planning and charitable giving”

Can I Give Real Estate to a Charity in my Estate Plan?

Many nonprofits are now encouraging donors to make gifts of non-liquid assets, like cars, boats or real estate. If its thoroughly vetted and properly structured, a gift of real estate can help donors meet their financial planning and philanthropic goals, and at the same time give charities a new source of funding.

Real estate holdings account for a major part of the assets in U.S. households. However, just a small proportion of charitable contributions are land or buildings. Many individuals with real estate holdings may want to consider donating their property to charity, instead of selling the property themselves. That’s particularly true, if they want to minimize taxes or generate retirement income.

The fact that many real estate gifts are more complex and cost more for charities to process and manage than cash donations, means that it’s important to think about donating to charitable organizations that have developed a clear set of gift acceptance policies and have the necessary procedures in place to accept a gift of real estate. As a prospective donor, you should look for policy guidelines that detail the kinds of properties that will and won’t be accepted. Perhaps the charity only accepts commercial or undeveloped land.

It is also important to look for the types of estate planning tools donors are allowed to use when making these gifts. These tools can include charitable remainder trusts, charitable gift annuities and retained life estates. You should also see if there are any stipulations on the charity’s acceptance of properties that come with mortgages or other risk factors.

Once a real estate gift has been approved on a preliminary basis by a charity, the donor may then be required to provide additional information about the property. This “due diligence” phase may include a title search, assessments of the local market and environmental conditions, a professional inspection and a site visit by the organization’s representative. It is customary for the charitable organization to defray the costs of conducting these studies.

After the due diligence has been finished, and the charity has agreed to accept the gift, the donor will be notified of the results of the investigations, and of the plans for how the final transfer of the property will take place.

This type of donation can offer many advantages to donors, including generating income, deferring or lowering taxes and decreasing the expenses of property maintenance.

Be sure to consult your estate planning attorney to discuss real estate contributions to charities.

Reference: TC Palm (November 8, 2018) “Donation of real estate is nice form of charitable giving”

Expect to Keep Working? You Still Need a Succession Plan

If you’re a business owner who loves what you do, you consider your business to be one of your biggest achievements after your family and enjoy the challenges it presents. As for retiring, why should you?

Some business owners are reluctant to even consider selling the business or retiring. They don’t make a succession plan, says The San Antonio Business Journal in the article, “Plan your exit even if you never plan to leave your business,” and that can lead to a disaster for their family and their employees. That’s something the business owner needs to consider—and why even if they plan on working, until they are carried out, they need a succession plan.

Bigstock-Couple-running-bookshop-13904324Decrease your taxes. Whether you ultimately decide to sell your business, transfer ownership or die working, you probably don't want to pay more taxes than you have to. There are two ways exit planning can help minimize taxes, even if you truly want to work until you die. If your business value increases, your estate can benefit from a step-up in basis, if your ownership transfers pursuant to your estate plan. This saves your estate or beneficiaries from paying duplicate taxes on the entire business value.

The lifetime exclusion for gift and estate taxes is now to the point where most small and mid-sized business owners don’t need to pay estate taxes, if owners have created an appropriate estate plan. Your exit plan lets you leverage these benefits, since estate planning is a vital component in proper exit planning.

Protect your values. If you created a work culture that’s so unique and strong that it helps your company stand out in the marketplace or your business gives back to the community through charity work, exit planning lets you pursue and preserve your progress toward those objectives. Exit planning strategies can foster the culture you’ve built, protect the employees who made the business a success, and help you build the legacy you want. Exit planning can help keep your chosen values front and center and protect its value, even without your presence.

Growing your business. Everyone wants their business to grow in value, but many business owners get to a point where they can’t grow the company any more, by simply doing the same things they’ve been doing. However, exit planning concentrates on building business value, whether you exit or not. These activities can help you increase your business’ growth potential, by emphasizing value drivers. Those are the aspects of your business that make it attractive to buyers. When it’s done the right way, installing value drivers can make your ownership even more fulfilling—concentrating on certain value drivers can let you focus on only your favorite tasks within the business and delegate your least favorite responsibilities to other qualified employees.

You may keep working until the very end, or you may encounter a life event that makes you rethink how much of your time you want to devote to the business. Either way, a succession plan is like an estate plan for your business. It protects your family at home and your work family. Both will appreciate you doing so.

Speak with an estate planning attorney who can help you with your personal and business plans for the future.

Reference: The San Antonio Business Journal (October 16, 2018) “Plan your exit even if you never plan to leave your business”

Sheryl Sandberg is “Leaning In” to the Giving Pledge

Sandberg is donating her entire stake in Survey Monkey to charity, in the shape of shares or the proceeds of sales of those shares. The Facebook COO and Survey Monkey board member has embraced the Giving Pledge.

You don’t have to give away millions, or billions, to be philanthropic. In fact, if you are a regular donor to charities, you may want to give some thought to creating a donor-advised fund. CNBC’s article, ““What you can learn from Sheryl Sandberg's plans to donate her SurveyMonkey shares,” explains how donor advised funds work and how donating appreciated assets benefits investors at all asset levels.

Giving-to-charity2Sandberg plans to donate all of the shares she owns, or the proceeds of the sale of those shares, to the Sheryl Sandberg & Dave Goldberg Family Foundation, according to the company's IPO prospectus. Her charitable plans are part of her strategy to participate in the Giving Pledge, whereby some of the world's wealthiest individuals, including Warren Buffett and Bill Gates, have agreed to give most of their wealth to charity. Sandberg has already donated Facebook shares to charity through a donor-advised fund.

Many people experience satisfaction in giving during life, and Sandberg’s actions are a good lesson in charitable giving. Giving appreciated investments to charity is a wise strategy. However, there are some things to consider before you do this.

The tax savings from charitable giving can be significant, but that shouldn’t be your sole rationale for giving. The reason is that you’ll still be parting with more money than the tax itself. Don't write a large check for charitable purposes without reviewing it with your attorney. In many cases, she can increase the value and benefit of the gift at no cost to the charity. If you plan to give money away to charity on a regular basis, you may want to think about a donor-advised fund.

A donor-advised fund allows you to monitor your charitable donations, because the money comes from one fund. The IRS lets you take a tax deduction in the year you give to your donor-advised fund. You then can let the money sit in your account until you decide that you are ready to donate it. Donor-advised funds also let a person shield their gifts from the public.’

People who have multi-millions in assets can also create a private foundation for their giving strategy. The cost of setting up and managing a foundation is prohibitive for anyone but the wealthiest individuals or families. The foundation has to file a tax return every year, and usually requires the help of an attorney to set up. For families with that kind of money, the foundation provides a larger degree of control, and their gifts are public, not private, in nature.

Reference: CNBC (October 4, 2018) “What you can learn from Sheryl Sandberg's plans to donate her SurveyMonkey shares”

 

Scroll to Top