What is “Financed Charitable Life Insurance?

What is “Financed Charitable Life Insurance?

This is a technique that is also growing in popularity in the noncharitable marketplace. To summarize, the charity takes out a loan from a bank to pay premiums on a pool of insurance contracts. The death benefits, or in some cases other assets of the charity, are used as collateral for the cumulative loan. This planning is problematic in several ways. Depending on the circumstances, it may trigger unrelated business taxable income, and if the…

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How can Life Insurance With Gifts of Stock to Charity Help Keep a Family Business in the Family?

How can Life Insurance With Gifts of Stock to Charity Help Keep a Family Business in the Family?

Life insurance can be used creatively to combine business continuity objectives and charitable goals in a number of ways. For instance, suppose your client wants to benefit charity, provide liquidity for her own estate, and guarantee that no one but her son can obtain the stock. One possible solution is for her to transfer stock to the charity directly. She could make a gift to her son of the income tax savings that the donation…

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Introduction to Wealth Enhancement Trusts

Introduction to Wealth Enhancement Trusts

Some professionals refer to the combination of life insurance and a charitable remainder trust as a “Wealth Enhancement Trust.” Through a combination of charitable trust planning and life insurance replacement of wealth, beneficiaries may receive more wealth than if no charitable gift were made. This is sometimes referred to as wealth enhancement rather than mere wealth replacement. Charitable remainder trusts are generally exempt from income taxes. This enables a client to convert highly appreciated property…

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Tax Implications of Using Life Insurance for Charitable Giving

Tax Implications of Using Life Insurance for Charitable Giving

Income Tax A current income tax deduction is allowed for the transfer of a cash value life insurance policy to a qualified charity. The client will save an amount equal to the value of the deductible gift multiplied by the client’s effective tax bracket. For example, a $10,000 gift by a client in a 40 percent combined federal and state income tax bracket will yield a $4,000 tax savings. This means the cost of the…

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6 Primary Ways to Use Life Insurance for Charitable Purposes

6 Primary Ways to Use Life Insurance for Charitable Purposes

Life insurance creates an instant expanded estate, and in many cases the proceeds can be transferred free of estate tax. If arranged properly, all parties could end up with a greater economic benefit than if life insurance were not used. Below is a more detailed explanation of some of the strategies used to provide for charity through indirect uses of life insurance: A charity can be named as the annual recipient of any dividends received…

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Requirements of Using Life Insurance for Charitable Purposes

Requirements of Using Life Insurance for Charitable Purposes

The gift of the policy or other property must be made to a qualified charity such as a nonprofit school or hospital, a church or synagogue, or a local or civic organization such as the Boy Scouts or Girl Scouts of America. Qualified means that the charity meets three conditions: the organization is operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competitions, or to prevent…

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When to Use Life Insurance for Charitable Purposes

When to Use Life Insurance for Charitable Purposes

When the client would like to benefit one or more charities for reasons other than tax savings. When the client would like to benefit himself and/or his family through tax savings and create more income and capital at the same time a charity benefits. When a client would like to achieve the first and second objectives and is willing to incur expenses to accomplish both. Planners and clients should both be aware that tax advantages…

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An Introduction to the Charitable Uses of Life Insurance

An Introduction to the Charitable Uses of Life Insurance

A transfer of cash or other property to certain charitable, religious, scientific, educational, or other organizations may result in favorable income, gift, and estate tax results for the donor.1 Income taxes can be reduced and estate taxes can be saved. More importantly, a gift to charity serves to reward the donor in significant psychological and moral ways. Charitable giving is one of the most important of all estate and financial planning considerations. Life insurance is…

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