Stewardship of Giving

Leveraging your gifts using Life Insurance Techniques

Step one
The donor decides to leave part of his estate to a community foundation as an advice and consent fund for his children.

Step two
The donor puts low income producing (2% yield), highly appreciated securities in a charitable remainder trust, naming the community foundation as the beneficiary. The donor, who can serve as trustee, receives an immediate charitable deduction that reduces current income taxes.

Step three
The donor/trustee sells the low income producing, highly appreciated assets placed inside the trust. Since this is a charitable trust, no capital gains tax is recognized by the donor. One hundred percent (100%) of the assets go to work and are invested in a broadly diversified portfolio designed to produce an income in excess of 6% per year (a total net income approach). The assets are now protected through diversification while generating a higher income for the donor. Equally significant is that the assets have been removed from the donor's estate and therefore will not be subject to the estate tax. At the death of the donor and spouse, the assets in trust are given to charity by the children as directed by the trust.

Step four
The donor uses a portion of the increased income from the trust to buy a life insurance policy on himself or for both him and his wife. He names the beneficiary of the policy. The beneficiary could be the donor's children, to replace the loss of the assets given to the trust, or the beneficiary could be a charity or a combination of charities. Generally, the life insurance amount is equal to or greater than the value of the assets that were placed in the charitable trust, thereby matching up with the value of the assets that the donor originally planned to leave to his children or charity at death.

Results
Donor: Eliminates potential estate tax, capital gains tax and lowers income tax on gifted assets; improves the yield on the assets, while allowing tax free diversification. Donor's spouse receives guaranteed fixed income for life. Charity: Donor's future gift to charity has been significantly leveraged up.