Tax Facts—Featured Article
Give It Away Twice: Once to Charity, Once to Family—Part One
Posted December 2007
If you are like most people, the ultimate allocation of your assets is one of the most important decisions you face. Few of us feel like we have more than enough resources to meet all of our goals.
Wouldn't it be nice if some of our resources could do double duty?
Several of our friends have found a creative way to do just that. Through careful and creative planning they have been able to make generous gifts to without diminishing the amount they pass on to their family members.
This plan is remarkably simple. Here's how it works.
EXAMPLE—John and Dorothy T, both 62, are longtime supporters of . For years they have had a dream of creating an endowment in their names, but they are concerned about how such a gift would affect what they have available to pass on to their children.
This year they decide to fulfill that dream by transferring $250,000 worth of stock to us to create the endowment. In their 35% federal income-tax bracket, the gift saves John and Dorothy $92,500 in taxes, which they use to purchase enough life insurance to replace the value of the stock they have contributed—and they name their children as the beneficiaries. The policy will pay the children $25,000 (the value of the stock used to fund the endowment) when both John and Dorothy are gone.
This particular "asset replacement" plan utilizes what is known as second-to-die life insurance. Since the policy pays only when both of the insured persons have passed away, the premiums are typically much lower than they would be for a policy on the life of either person individually.
An asset replacement plan can be created using individual policies, as well. A second-to-die policy simply increases the ability of the donors to leverage the tax savings into life insurance proceeds to replace the value of assets given to charity.
Of course, the cost of any life insurance policy is directly related to the age and health of the proposed insured. The younger and healthier the insured, the higher face value generated by the premium payments.
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Stay tuned next month for further ideas involving creative ways you can use life insurance in your own charitable planning. If you would like to learn more about asset-replacement planning or other ways to plan using life insurance, please contact us. We welcome the opportunity to assist you.
